Boeing-Airbus Subsidy Dispute: Recent Developments



Updated August 25, 2020
Boeing-Airbus Subsidy Dispute: Recent Developments
On October 18, 2019, the United States imposed additional
claims that Boeing benefits from U.S. government support,
tariffs on $7.5 billion worth of U.S. imports from the
mainly as research and development funds from the
European Union and the United Kingdom (UK) (hereinafter
National Aeronautics and Space Administration (NASA),
together referred to as the EU). The action, authorized by
U.S. Department of Defense, and other agencies.
World Trade Organization (WTO) dispute settlement
Furthermore, the EU claims that Boeing receives subsidies
procedures, followed an investigation by the U.S. Trade
in the form of tax reductions and exemptions, as well as
Representative (USTR), under “Section 301” (Title III of
infrastructure support to develop and produce new aircraft.
the Trade Act of 1974, 19 U.S.C. §§2411-2420). The USTR
During the 1970s and 1980s, the United States and the EU
determined that the EU had denied U.S. rights under WTO
engaged in bilateral and multilateral negotiations to address
agreements. Specifically, the USTR concluded that the EU
their concerns. While these efforts ultimately failed, they
and certain current member states and the UK had not
led to two major agreements still in place today: the 1979
complied with a WTO Dispute Settlement Body (DSB)
GATT Agreement on Trade and Civil Aircraft and the 1986
ruling recommending the withdrawal of WTO-inconsistent
Civil Aircraft Sector Understanding (an annex to the
subsidies on the manufacture of large civil aircraft. In 2011,
Organisation for Economic Co-operation and
the dispute settlement (DS) panel confirmed that these
Development’s Arrangement on Officially Supported
subsidies breached the EU’s WTO obligations under the
Export Credits). The United States also initiated dispute
1994 General Agreement on Tariffs and Trade (GATT) and
settlement cases under the GATT’s 1980 SCM Agreement.
the Agreement on Subsidies and Countervailing Measures
The United States and the EU subsequently reached a
(SCM Agreement).
bilateral agreement in 1992: the U.S.-EU Agreement on
The authorization to take countermeasures against the
Large Civil Aircraft (LCA Agreement). The agreement
EU—the largest amount in the WTO’s history—comes
placed limits on government subsidies affecting large civil
after nearly 15 years of litigation at the WTO. The litigation
aircraft manufactured by Airbus and Boeing, and it
involves the world’s two largest aerospace manufacturers,
included a ban on future production support, a cap on
U.S.-based Boeing and EU-based Airbus, which have
development support, a ceiling on indirect support, and
competed for years for dominance in the commercial airline
conditions on repayment terms.
supply market. The United States successfully argued that
Dispute Settlement at the WTO
Airbus had received billions of dollars in illegal subsidies,
Citing dissatisfaction with EU compliance with the 1992
which resulted in a loss to Boeing of significant market
Agreement and failure to negotiate a more comprehensive
share throughout the world. The U.S. action to impose
deal on subsidies, the United States resorted to WTO
tariffs, consistent with the WTO arbitrator’s finding on the
dispute settlement in 2004. It filed a WTO case (case
appropriate level of countermeasures, aims to pressure the
number DS316) and withdrew from the LCA Agreement. In
EU into either ending the subsidies or negotiating an
response, the EU immediately initiated a WTO case against
agreement with the United States. In a pending parallel
the United States (DS353) and rejected the U.S. termination
dispute case against the United States, the WTO is expected
of the 1992 Agreement. After intense discussions in late
to authorize the EU to seek remedies in the form of tariffs
2004 and early 2005, both sides reached an agreement on
on U.S. exports to the EU, after the WTO determined in
the terms of a new bilateral deal. They also agreed not to
early 2019 that the United States had also failed to abide by
request WTO panels relating to the pending disputes and
WTO subsidies rules in supporting Boeing.
not to commit new government support for aircraft
Due to the magnitude of U.S.-EU trade (of which civilian
development or production during negotiations for the new
aircraft, engines, and parts are a major component) and
deal. However, negotiations ultimately stalled and both
ongoing trade frictions, some Members of Congress are
sides requested the establishment of WTO panels in May
closely monitoring developments in the WTO litigation and
2005. After multiple phases of proceedings since the WTO
in U.S.-EU negotiations.
first ruled in favor of the United States in 2010 (see text
Background
box), on October 2, 2019, the WTO issued its final ruling
The United States and the EU have long claimed that the
on countermeasures in 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
the EU and certain member states for the manufacture of large civil
years, subsidies to their respective Airbus-affiliated
aircraft violated the EU’s WTO commitments and had caused harm
companies to aid in the development, production, and
to the interests of the United States. The EU appealed the panel’s
marketing of large commercial aircraft (e.g., through equity
findings before the WTO Appellate Body (AB).
infusions, debt forgiveness, debt rollovers, marketing
assistance, and alleged political and economic pressure on
purchasing governments). The EU, on the other hand,
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Boeing-Airbus Subsidy Dispute: Recent Developments

billion of trade affected, while whiskies, liqueurs, and wine
May 2011. The final panel report, as amended by an AB report,
confirmed that EU and certain member state subsidies were WTO-
(mainly from the UK and France) accounted for another
inconsistent.
40%, and food and agricultural products (mainly from

Spain and France) accounted for the remaining 20%.
June 2011. The DSB adopted the panel and AB reports and
recommended that the EU and certain member states bring the
“Carousel” Retaliation
WTO-inconsistent measures into compliance with WTO rules. The
EU and certain member states had until December 2011 to bring the
Section 306 of the Trade Act of 1974 requires the USTR to periodical y
measures into compliance.
revise (e.g., rotate) the list of products subject to retaliation when the
December 2011. The EU asserted that it had implemented the DSB
targeted foreign government does not implement a recommendation
recommendations. The United States disagreed and requested
made pursuant to a DS proceeding under the WTO. This periodic
authorization from the DSB to impose countermeasures
revision is known as “carousel retaliation,” and the intent of rotating
commensurate with the adverse effects of the WTO-inconsistent
products (and/or increasing the level of additional duties) is to exert
measures. The EU referred the matter to arbitration to assess the
pressure on the government, through their domestic exporters, to
proper level of any countermeasures.
change its position on the disputed practice. The USTR has 120 days
January 2012. The United States and the EU entered into a
after the date in which an action is first taken (and every 180 days
procedural agreement pursuant to which arbitration would be
thereafter) to review the list of products or action and revise it—in
suspended until after the WTO compliance panel and any appellate
whole or in part. In revising any list or action, the USTR must act in a
proceedings determined whether the EU had implemented the DSB
manner that is most likely to result in the targeted government
recommendations.
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 the 2012 procedural agreement, the WTO arbitrator resumed
February 2020 Revision. In December 2019, the USTR
its work (suspended in January 2012) to determine the level of
announced a review of the initial Section 301 action taken
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
response to the EU’s WTO-inconsistent subsidies amounts to
on this review, in February the USTR increased the rate of
approximately $7.5 bil ion annual y.
additional duties on large civil aircraft to 15%, effective

March 18, 2020, and modified the list of other products
October 9, 2019. Pursuant to Section 301 of the Trade Act of 1974,
the USTR determined to impose additional ad valorem duties of 10%
subject to additional 25% duties (by removing prune juice
and 25% on $7.5 bil ion worth of U.S. imports from the EU.
and adding knives to the list), effective March 5, 2020. The
October 18, 2019. Section 301 tariffs on certain U.S. imports from
number of product lines and trade affected remained
the EU went into effect.
unchanged.
December 2, 2019. A WTO compliance panel rejected the EU’s
August 2020 Revision. In June 2020, the USTR initiated
claims that EU subsidies had been brought in line with WTO rulings.
a second review of the Section 301 action and requested
February 14, 2020. The USTR revised the action taken in October
public comments. While in July the EU announced
2019 by increasing the rate of additional duties on large civil aircraft
amendments to certain French and Spanish Airbus launch
(to 15%), effective March 18, 2020, and by modifying the list of other
products subject to additional 25% duties, effective March 5, 2020.
aid contracts, the USTR determined that these changes did

not fully implement the DSB’s recommendations. As a
August 12, 2020. The USTR modified the list of products subject to
additional duties of 25%, effective September 1, 2020, but determined
result, in August, the agency altered the composition of the
to maintain the current levels of additional duties.
list of non-aircraft products subject to additional duties (2
product lines removed and 9 added of an equivalent amount
Section 301 Tariff Actions
of trade), effective September 1, 2020. The amount of trade
Following the USTR’s Section 301 investigation and its
affected and level of additional duties remained unchanged.
determination to enforce U.S. WTO rights, the USTR
Outlook
published in October 2019 a list of 158 eight-digit product
The USTR plans to continue to reevaluate the tariff actions
lines subject to additional duties. The list targeted mainly
periodically based on the progress of its negotiations with
U.S. imports from the states responsible for the illegal
the EU. Negotiations could be affected if the EU retaliates
subsidies—France, Germany, Spain, and the UK, but is not
and imposes tariffs on U.S. exports, in response to either
limited to the aircraft industry. The tariffs affected
new U.S. actions or an upcoming WTO decision in the
approximately $7.5 billion worth of imports, or about 1.5%
parallel EU dispute case against the United States. The
of all U.S. goods imports from the EU in 2018. The WTO
WTO arbitrator has yet to estimate the harm caused by U.S.
authorized the United States to impose additional ad
illegal subsidies and authorize any EU countermeasures, but
valorem duties—that is, based on the value of the import—
a decision is expected in late 2020.
of up to 100%; however, the USTR indicated that the tariff
increases would be limited to 10% on large civil aircraft
Andres B. Schwarzenberg, Analyst in International Trade
and 25% on agricultural and other products.
and Finance
By broad product category, aircraft (mainly from France
IF11364
and Germany) accounted for roughly 40% of the $7.5
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Boeing-Airbus Subsidy Dispute: Recent Developments


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