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International: World Trade Organization Authorizes United States Countermeasures Against the European Union

(Oct. 8, 2019) On October 2, 2019, the World Trade Organization (WTO) authorized the United States to apply countermeasures of nearly $7.5 billion annually against the European Union (EU) in a long-running dispute regarding subsidies given by the EU to the aircraft manufacturer Airbus. Airbus and the United States manufacturer Boeing dominate the worldwide commercial aviation industry, and Airbus is Boeing’s biggest competitor.

Background to the “Airbus Dispute” at the WTO 

The dispute began in 2004 when the United States requested consultations with the EU member states regarding subsidies to Airbus companies that the United States complained were inconsistent with WTO obligations. The WTO Panel noted in a report issued in 2010 that, among other inconsistencies with WTO obligations, “the effect of the subsidies is significant lost sales in the same market within the meaning of Article 6.3(c) of the SCM Agreement, constituting serious prejudice to the interests of the United States within the meaning of Article 5(c) of the SCM Agreement.” (WTO Panel Report at 1048.)

After the EU appealed the Panel report, the Appellate Body issued its report, which was adopted by the WTO Dispute Settlement Body (DSB) in 2011. The EU subsequently informed the DSB that it had taken appropriate steps to bring its measures into conformity with WTO obligations. The United States, however, disagreed with this claim and requested a compliance panel in 2012. The Compliance Panel report was published in 2016, which the EU appealed and the United States cross-appealed. Thereafter, the Compliance Appellate Body report was published in May 2018.

Throughout this legal process, the United States maintained that the EU was not complying with the DSB’s recommendations and rulings, and requested the right to take countermeasures in accordance with WTO rules. Similarly, since 2011, the EU has objected to the trade actions undertaken by the United States, and requested the matter to be referred to arbitration. While the arbitration was suspended from 2012 to 2018 at the request of both the United States and the EU, the United States requested in July 2018 that the arbitrator resume its work.

WTO Dispute Settlement Rules and Noncompliance

Despite being touted as an extremely efficient and effective international law dispute settlement mechanism, some critics have argued that the issue of noncompliance is a persistent problem in the WTO dispute settlement system. There have been 23 situations where one WTO member has failed to comply with a WTO ruling and another complaining WTO member has been legally justified to retaliate. One of the earliest legal battles over trade retaliation was also between the United States and Europe. In 1999, the WTO arbitrators decided that the United States could take countermeasures of nearly $200 million per year against the European Communities in retaliation for a dispute regarding the importation, sale, and distribution of bananas. The EU and United States came to a compromise in 2001 to reform the EU banana regulations and lift U.S. retaliatory measures. In this current case of noncompliance, The Economist predicts that the WTO will also authorize the EU to apply its own countermeasures on goods from the United States later this year, for subsidies that the United States provides to Boeing.