Updated December 10, 2020
Boeing-Airbus Subsidy Dispute: Recent Developments
On October 18, 2019, the United States imposed additional
marketing of large commercial aircraft (e.g., through equity
tariffs on $7.5 billion worth of U.S. imports from the
infusions, debt forgiveness, debt rollovers, marketing
European Union and the United Kingdom (UK) (hereinafter
assistance, and alleged political and economic pressure on
together referred to as the EU). The action, authorized by
purchasing governments). The EU, on the other hand,
World Trade Organization (WTO) dispute settlement
claims that Boeing benefits from U.S. government support,
procedures, followed an investigation by the Office of the
mainly as research and development funds from the
United States Trade Representative (USTR), under “Section
National Aeronautics and Space Administration (NASA),
301” (Title III of the Trade Act of 1974, 19 U.S.C. §§2411-
U.S. Department of Defense, and other agencies.
2420). The USTR determined that the EU had denied U.S.
Furthermore, the EU claims that Boeing receives subsidies
rights under WTO agreements. Specifically, the USTR
in the form of tax reductions and exemptions, as well as
concluded that the EU and certain current member states
infrastructure support to develop and produce new aircraft.
and the UK had not complied with a WTO Dispute
During the 1970s and 1980s, the United States and the EU
Settlement Body (DSB) ruling recommending the
engaged in bilateral and multilateral negotiations to address
withdrawal of WTO-inconsistent subsidies on the
their concerns. While these efforts ultimately failed, they
manufacture of large civil aircraft. In 2011, the dispute
led to two major agreements still in place today: the 1979
settlement (DS) panel confirmed that these subsidies
GATT Agreement on Trade and Civil Aircraft and the 1986
breached the EU’s WTO obligations under the 1994
Civil Aircraft Sector Understanding (an annex to the
General Agreement on Tariffs and Trade (GATT) and the
Organisation for Economic Co-operation and
Agreement on Subsidies and Countervailing Measures
Development’s Arrangement on Officially Supported
(SCM Agreement).
Export Credits). The United States also initiated dispute
The authorization to take countermeasures against the
settlement cases under the GATT’s 1980 SCM Agreement.
EU—the largest amount in the WTO’s history—comes
The United States and the EU subsequently reached a
after nearly 15 years of litigation at the WTO. The litigation
bilateral agreement in 1992: the U.S.-EU Agreement on
involves the world’s two largest aerospace manufacturers,
Large Civil Aircraft (LCA Agreement). The agreement
U.S.-based Boeing and EU-based Airbus, which have
placed limits on government subsidies affecting large civil
competed for years for dominance in the commercial airline
aircraft manufactured by Airbus and Boeing, and it
supply market. The United States successfully argued that
included a ban on future production support, a cap on
Airbus had received billions of dollars in illegal subsidies,
development support, a ceiling on indirect support, and
which resulted in a loss to Boeing of significant market
conditions on repayment terms.
share throughout the world. The U.S. action to impose
Dispute Settlement at the WTO
tariffs, consistent with the WTO arbitrator’s finding on the
Citing dissatisfaction with EU compliance with the 1992
appropriate level of countermeasures, aims to pressure the
Agreement and failure to negotiate a more comprehensive
EU into either ending the subsidies or negotiating an
deal on subsidies, the United States resorted to WTO
agreement with the United States.
dispute settlement in 2004. It filed a WTO case (DS316)
In a parallel dispute case against the United States, the EU
and withdrew from the LCA Agreement. In response, the
also received WTO authorization to take countermeasures
EU immediately initiated a WTO case against the United
against the U.S. for failing to abide by WTO subsidies rules
States (DS353) and rejected the U.S. termination of the
in supporting Boeing. In November 2020, the EU began
1992 Agreement. After intense discussions in late 2004 and
imposing additional tariffs on approximately $4.0 billion
early 2005, both sides reached an agreement on the terms of
worth of EU imports from the United States (15% on
a new bilateral deal. They also agreed not to request WTO
aircraft and 25% on agricultural and other products).
panels relating to the pending disputes and not to commit
Due to the magnitude of U.S.-EU trade (of which civilian
new government support for aircraft development or
aircraft, engines, and parts are a major component) and
production during negotiations for the new deal. However,
ongoing trade frictions, some Members of Congress are
negotiations ultimately stalled and both sides requested the
closely monitoring developments in the WTO litigation and
establishment of WTO panels in May 2005. After multiple
in U.S.-EU negotiations.
phases of proceedings since the WTO first ruled in favor of
Background
the United States in 2010 (see text box), in October 2019,
the WTO issued its final ruling on countermeasures in the
The United States and the EU have long claimed that the
U.S. case against the EU.
other either directly or indirectly subsidizes their domestic
civil aircraft industry. According to the United States, the
Key Developments in the U.S. Case since 2010
EU and the governments of certain states—France,
June 2010. The WTO dispute settlement panel ruled in favor of the
Germany, Spain, and the UK—have provided, over the
United States. It determined that some of the subsidies provided by
years, subsidies to their respective Airbus-affiliated
the EU and certain member states for the manufacture of large civil
companies to aid in the development, production, and
aircraft violated the EU’s WTO commitments and had caused harm
https://crsreports.congress.gov
Boeing-Airbus Subsidy Dispute: Recent Developments
to the interests of the United States. The EU appealed the panel’s
“Carousel Retaliation”
findings before the WTO Appellate Body (AB).
Section 306 of the Trade Act of 1974 requires the USTR to periodical y
May 2011. The final panel report, as amended by an AB report,
revise (e.g., rotate) the list of products subject to retaliation when the
confirmed that EU and certain member state subsidies were WTO-
targeted foreign government does not implement a recommendation
inconsistent.
made pursuant to a DS proceeding under the WTO. This periodic
June 2011. The DSB adopted the panel and AB reports and
revision is known as “carousel retaliation,” and the intent of rotating
recommended that the EU and certain member states bring the
products (and/or increasing the level of additional duties) is to exert
WTO-inconsistent measures into compliance with WTO rules. They
pressure on the government, through their domestic exporters, to
had until December 2011 to bring the measures into compliance.
change its position on the disputed practice. The USTR has 120 days
December 2011. The EU asserted that it had implemented the DSB
after the date in which an action is first taken (and every 180 days
recommendations. The United States disagreed and requested
thereafter) to review the list of products or action and revise it—in
authorization from the DSB to impose countermeasures. The EU
whole or in part. In revising any list or action, the USTR must act in a
referred the matter to arbitration to assess the proper level of any
manner that is most likely to result in the targeted government
countermeasures.
implementing the DSB’s recommendations or achieving a mutual y
May 2018. The DSB adopted the compliance panel and AB reports
satisfactory solution to the issue(s) raised. No revision is required if the
confirming that the EU subsidies are WTO-inconsistent and continue
USTR determines that compliance is imminent or agrees with the
to cause adverse effects to U.S. interests.
affected U.S. industry that revising the list is not necessary.
July 2018. At the request of the United States, and in accordance
with a 2012 U.S.-EU procedural agreement, the WTO arbitrator
February 2020 Revision. In December 2019, the USTR
resumed its work (suspended in January 2012) to determine the level
announced a review of the initial Section 301 action taken
of countermeasures to be authorized as a result of the EU’s WTO-
in October 2019. The agency specifically requested
inconsistent subsidies.
comments on whether (1) products covered by the action
April 12, 2019. The USTR initiated an investigation, under Section
should remain on or be removed from the tariff list, (2) the
301 of the Trade Act of 1974, to enforce U.S. rights in the WTO case
current rate of additional duty should be increased to as
against the EU and certain member states.
high as 100% for products that remain on the list, and (3)
October 2, 2019. The WTO arbitrator concluded that the
additional EU products should be added to the list. Based
appropriate level of countermeasures for the United States to take in
on this review, the USTR increased the rate of additional
response to the EU’s WTO-inconsistent subsidies amounts to
approximately $7.5 bil ion annual y.
duties on large civil aircraft to 15%, effective March 18,
2020, and modified the list of other products subject to
October 9, 2019. Pursuant to Section 301 of the Trade Act of 1974,
the USTR determined to impose additional ad valorem duties of 10%
additional 25% duties (by removing prune juice and adding
and 25% on $7.5 bil ion worth of U.S. imports from the EU.
knives to the list), effective March 5, 2020. The number of
product lines and trade affected remained unchanged.
October 18, 2019. Section 301 tariffs on certain U.S. imports from
the EU went into effect.
August 2020 Revision. In June 2020, the USTR initiated
December 2, 2019. A WTO compliance panel rejected the EU’s
a second review of the Section 301 action and requested
claims that EU subsidies had been brought in line with WTO rulings.
public comments. While in July the EU announced
February 14, 2020. The USTR revised the action taken in October
amendments to certain French and Spanish Airbus launch
2019 by increasing the rate of additional duties on large civil aircraft
aid contracts, the USTR determined that these changes did
(to 15%), effective March 18, 2020, and by modifying the list of other
products subject to additional 25% duties, effective March 5, 2020.
not fully implement the DSB’s recommendations. As a
result, the agency altered the composition of the list of non-
August 12, 2020. The USTR modified the list of products subject to
additional duties of 25%, effective September 1, 2020, but determined
aircraft products subject to additional duties (2 product lines
to maintain the current levels of additional duties.
removed and 9 added of an equivalent amount of trade),
effective September 1, 2020. The amount of trade affected
Section 301 Tariff Actions
and level of additional duties remained unchanged.
Following the USTR’s Section 301 investigation and its
Outlook
determination to enforce U.S. WTO rights, the USTR
Following WTO authorization, the United States and the
published in October 2019 a list of 158 eight-digit product
EU imposed punitive import duties on each other’s
lines subject to additional duties. The list targeted mainly
products. Both sides have contested each other’s tariff
U.S. imports from the states responsible for the illegal
actions and expressed their desire to seek a negotiated
subsidies—France, Germany, Spain, and the UK, but is not
solution to the dispute. The USTR claims that the United
limited to the aircraft industry. The tariffs affected
States has fully implemented the WTO’s DSB
approximately $7.5 billion worth of imports, or about 1.5%
recommendations as of early 2020, and therefore “there is
of all U.S. goods imports from the EU in 2018. The WTO
no valid basis for the EU to retaliate against any U.S.
authorized the United States to impose additional ad
goods.” The agency has also indicated that it will continue
valorem duties—that is, based on the value of the import—
to reevaluate U.S. Section 301 tariff actions periodically
of up to 100%; however, the USTR indicated that the tariff
based on the progress of U.S.-EU negotiations. While the
increases would be limited to 10% on large civil aircraft
two sides could make progress towards reaching an
and 25% on agricultural and other products.
agreement in the coming weeks, a resolution to the
By broad product category, aircraft (mainly from France
dispute—if any—is not likely to occur before the 117th
and Germany) accounted for roughly 40% of the $7.5
Congress.
billion of trade affected, while whiskies, liqueurs, and wine
Andres B. Schwarzenberg, Analyst in International Trade
(mainly from the UK and France) accounted for another
40%, and food and agricultural products (mainly from
and Finance
Spain and France) accounted for the remaining 20%.
IF11364
https://crsreports.congress.gov
Boeing-Airbus Subsidy Dispute: Recent Developments
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