Boeing-Airbus Subsidy Dispute: Recent Developments

Boeing-Airbus Subsidy Dispute: Recent Developments

Updated February 16, 2021
Boeing-Airbus Subsidy Dispute: Recent Developments
On October 18, 2019, the United States imposed additional
years, subsidies to their respective Airbus-affiliated
tariffs on $7.5 billion worth of U.S. imports from the
companies to aid in the development, production, and
European Union and the United Kingdom (UK) (hereinafter
marketing of large commercial aircraft (e.g., through equity
collectively referred to as the EU). The action, authorized
infusions, debt forgiveness, debt rollovers, marketing
by World Trade Organization (WTO) dispute settlement
assistance, and alleged political and economic pressure on
procedures, followed an investigation by the Office of the
purchasing governments). The EU, on the other hand,
United States Trade Representative (USTR), under “Section
claims that Boeing benefits from U.S. government support,
301” (Title III of the Trade Act of 1974, 19 U.S.C. §§2411-
mainly as research and development funds from the
2420). The USTR determined that the EU had denied U.S.
National Aeronautics and Space Administration (NASA),
rights under WTO agreements. Specifically, the USTR
U.S. Department of Defense (DOD), and other agencies.
concluded that the EU and certain current member states
Furthermore, the EU claims that Boeing receives subsidies
and the UK had not complied with a WTO Dispute
in the form of tax reductions and exemptions, as well as
Settlement Body (DSB) ruling recommending the
infrastructure support to develop and produce new aircraft.
withdrawal of WTO-inconsistent subsidies on the
During the 1970s and 1980s, the United States and the EU
manufacture of large civil aircraft. In 2011, the dispute
engaged in bilateral and multilateral negotiations to address
settlement (DS) panel confirmed that these subsidies
their concerns. While these efforts ultimately failed, they
breached the EU’s WTO obligations under the 1994
led to two major agreements still in place today: the 1979
General Agreement on Tariffs and Trade (GATT) and the
GATT Agreement on Trade and Civil Aircraft and the 1986
Agreement on Subsidies and Countervailing Measures
Civil Aircraft Sector Understanding (an annex to the
(SCM Agreement).
Organisation for Economic Co-operation and
The authorization to take countermeasures against the
Development’s Arrangement on Officially Supported
EU—the largest amount in the WTO’s history—came after
Export Credits). The United States also initiated dispute
nearly 15 years of litigation at the WTO. The litigation
settlement cases under the GATT’s 1980 SCM Agreement.
involves the world’s two largest aerospace manufacturers,
The United States and the EU subsequently reached a
U.S.-based Boeing and EU-based Airbus, which have
bilateral agreement in 1992: the U.S.-EU Agreement on
competed for years for dominance in the commercial airline
Large Civil Aircraft (LCA Agreement). The agreement
supply market. The United States successfully argued that
placed limits on government subsidies affecting large civil
Airbus had received billions of dollars in illegal subsidies,
aircraft manufactured by Airbus and Boeing, and it
which resulted in a loss to Boeing of significant market
included a ban on future production support, a cap on
share throughout the world. The U.S. action to impose
development support, a ceiling on indirect support, and
tariffs, consistent with the WTO arbitrator’s finding on the
conditions on repayment terms.
appropriate level of countermeasures, aims to pressure the
Dispute Settlement at the WTO
EU into either ending the subsidies or negotiating an
Citing dissatisfaction with EU compliance with the 1992
agreement with the United States.
Agreement and failure to negotiate a more comprehensive
In a parallel dispute case against the United States, the EU
deal on subsidies, the United States resorted to WTO
also received WTO authorization to take countermeasures
dispute settlement in 2004. It filed a WTO case (DS316)
against the United States for failing to abide by WTO
and withdrew from the LCA Agreement. In response, the
subsidies rules in supporting Boeing. In November 2020,
EU immediately initiated a WTO case against the United
the EU began imposing additional tariffs on approximately
States (DS353) and rejected the U.S. termination of the
$4.0 billion worth of EU imports from the United States
1992 Agreement. After intense discussions in late 2004 and
(15% on aircraft and 25% on agricultural and other
early 2005, both sides reached an agreement on the terms of
products). The USTR claims that the United States fully
a new bilateral deal. They also agreed not to request WTO
implemented the WTO’s DSB recommendations as of early
panels relating to the pending disputes and not to commit
2020, and therefore “there is no valid basis for the EU to
new government support for aircraft development or
retaliate against any U.S. goods.” Due to the magnitude of
production during negotiations for the new deal. However,
U.S.-EU trade (of which civilian aircraft, engines, and parts
negotiations ultimately stalled and both sides requested the
are a major component) and ongoing trade frictions, some
establishment of WTO panels in May 2005. After multiple
Members of Congress are closely monitoring developments
phases of proceedings since the WTO first ruled in favor of
in the WTO litigation and in U.S.-EU negotiations.
the United States in 2010 (see text box), in October 2019,
Background
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
United States. It determined that some of the subsidies provided by
Germany, Spain, and the UK—have provided, over the
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Boeing-Airbus Subsidy Dispute: Recent Developments
the EU and certain member states for the manufacture of large civil
“Carousel Retaliation”
aircraft violated the EU’s WTO commitments and had caused harm
Section 306 of the Trade Act of 1974 requires the USTR to periodical y
to the interests of the United States. The EU appealed the panel’s
revise (e.g., rotate) the list of products subject to retaliation when the
findings before the WTO Appellate Body (AB).
targeted foreign government does not implement a recommendation
 May 2011. The final panel report, as amended by an AB report,
made pursuant to a DS proceeding under the WTO. This periodic
confirmed that EU and certain member state subsidies were WTO-
revision is known as “carousel retaliation,” and the intent of rotating
inconsistent.
products (and/or increasing the level of additional duties) is to exert
pressure on the government, through their domestic exporters, to
 June 2011. The DSB adopted the panel and AB reports and
change its position on the disputed practice. The USTR has 120 days
recommended that the EU and certain member states bring the
after the date in which an action is first taken (and every 180 days
WTO-inconsistent measures into compliance with WTO rules. They
thereafter) to review the list of products or action and revise it—in
had until December 2011 to bring the measures into compliance.
whole or in part. In revising any list or action, the USTR must act in a
 December 2011. The EU asserted that it had implemented the DSB
manner that is most likely to result in the targeted government
recommendations. The United States disagreed and requested
implementing the DSB’s recommendations or achieving a mutual y
authorization from the DSB to impose countermeasures.
satisfactory solution to the issue(s) raised. No revision is required if the
USTR determines that compliance is imminent or agrees with the
 May 2018. The DSB adopted the compliance panel and AB reports
affected U.S. industry that revising the list is not necessary.
confirming that the EU subsidies are WTO-inconsistent and continue
to cause adverse effects to U.S. interests.
August 2020 Revision. In June 2020, the USTR initiated
 July 2018. At the request of the United States, and in accordance
a second review of the Section 301 action and requested
with a 2012 U.S.-EU procedural agreement, the WTO arbitrator
public comments. While in July the EU announced
resumed its work (suspended in January 2012) to determine the level
amendments to certain French and Spanish Airbus launch
of countermeasures to be authorized as a result of the EU’s WTO-
aid contracts, the USTR determined that these changes did
inconsistent subsidies.
not fully implement the DSB’s recommendations. As a
 October 2, 2019. The WTO arbitrator concluded that the
result, in August the agency altered the composition of the
appropriate level of countermeasures for the United States to take in
response to the EU’s WTO-inconsistent subsidies amounts to
list of non-aircraft products subject to additional duties (2
approximately $7.5 bil ion annual y.
product lines removed and 9 added of an equivalent amount

of trade), effective September 1, 2020. The amount of trade
December 2, 2019. A WTO compliance panel rejected the EU’s
claims that EU subsidies had been brought in line with WTO rulings.
affected and level of additional duties remained unchanged.
December 2020 Revision. Following WTO
Section 301 Tariff Actions
authorization, in November 2020 the EU began imposing
Following the USTR’s Section 301 investigation and its
tariffs on U.S. products. In response to concerns with the
determination to enforce U.S. WTO rights, the USTR
methodology used by the EU to exercise this authorization,
published a list of 158 eight-digit product lines subject to
the USTR determined to adjust the reference period of the
additional duties. The list targeted mainly U.S. imports
Section 301 action to mirror that of the EU. According to
from the states responsible for the illegal subsidies—
the USTR, the August 2019-July 2020 benchmark reference
France, Germany, Spain, and the UK, but was not limited to
period used by the EU to determine U.S. product coverage
the aircraft industry. The tariffs affected approximately $7.5
is one in which trade volumes had been severely affected by
billion worth of imports, or about 1.5% of all U.S. goods
the pandemic-related economic downturn. The approach
imports from the EU in 2018. The WTO authorized the
enabled the EU to cover a greater volume of imports than if
United States to impose additional ad valorem duties—that
it had used, like the United States, data from the previous
is, based on the value of the import—of up to 100%;
calendar year. As a result, the USTR added certain aircraft
however, the USTR indicated that the tariff increases would
manufacturing parts, wine, cognac, and brandies from
be limited to 10% on large civil aircraft and 25% on
France and Germany to the list of products currently subject
agricultural and other products.
to additional 25% duties, effective January 12, 2021. The
By broad product category, aircraft (mainly from France
total annual trade value of the tariff subheadings subject to
and Germany) accounted for roughly 40% of the $7.5
additional duties remained unchanged.
billion of trade affected, while whiskies, liqueurs, and wine
Outlook
(mainly from the UK and France) accounted for another
Both the United States and EU have contested each other’s
40%, and food and agricultural products (mainly from
tariff actions and expressed their desire to seek a negotiated
Spain and France) accounted for the remaining 20%.
solution to the dispute. The EU is reportedly considering a
February 2020 Revision. In December 2019, the USTR
six-month moratorium on its tariffs and amendments to its
announced a review of the initial Section 301 action taken
launch aid program, which could facilitate progress towards
in October 2019. The agency specifically requested
reaching a resolution to the dispute in the coming months.
comments on whether (1) products covered by the action
In light of the December 2020 revision, the USTR
should remain on or be removed from the tariff list, (2) the
determined in February 2021 not to make further changes to
current rate of additional duty should be increased to as
the list of goods subject to additional tariffs. The agency
high as 100% for products that remain on the list, and (3)
has indicated that it will continue to reevaluate U.S. Section
additional EU products should be added to the list. Based
301 tariff actions periodically based on the progress of
on this review, the USTR increased the rate of additional
U.S.-EU negotiations.
duties on large civil aircraft to 15%, effective March 18,
Andres B. Schwarzenberg, Analyst in International Trade
2020, and modified the list of other products subject to
additional 25% duties (by removing prune juice and adding
and Finance
knives to the list), effective March 5, 2020. The number of
IF11364
product lines and trade affected remained unchanged.
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Boeing-Airbus Subsidy Dispute: Recent Developments

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https://crsreports.congress.gov | IF11364 · VERSION 6 · UPDATED