[WTO Case Review Series No.30] United States – Measures Affecting Trade in Large Civil Aircraft (Second Complaint): Recourse to Article 21.5 of the DSU by the European Union – Subsidies of which Adverse Effects must be Eliminated

Author Name UMEJIMA Osamu (Takasaki City University of Economics)
Creation Date/NO. January 2020 20-P-001
Research Project Comprehensive Research on the Current International Trade/Investment System (pt. IV)
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This WTO dispute is a recourse proceeding under Article 21.5 of the Dispute Settlement Understanding. The EU brought this dispute to examine whether the United States eliminated the adverse effects of, or withdrew subsidies, in accordance with recommendations by the DSU based on original panel and Appellate Body reports. This case is one of a series of WTO disputes over subsidies granted to large commercial aircraft manufacturers, such as Boeing, by the U.S. Federal and local governments, and Airbus, by EU members.

The Panel in this resource dispute found the non-compliance by the United States with the recommendations with respect to one measure only. The Appellate Body reversed most of the Panel's findings, but was unable to complete the legal analysis to reach its own conclusion except for one additional measure. This inability of the Appellate Body shed light on the deficiency in the WTO dispute settlement system due to the lack of remand proceedings.

The Appellate Body in this dispute clarified factors which allow for certain subsidies to be determined as subject to discipline under the WTO Agreement on Subsidies and Countervailing Measures ("SCM Agreement"), such as R&D contracts and the direct transfer of funds, de facto specificity, and regional specificity. In particular, the Appellate Body found that the implementing Member may not be exempted from its obligation to eliminate the adverse effects of subsidies even if such effects have been incorporated in past sales. It also affirmed the Panel's finding that Boeing used its received subsidies for price-sensitive sales campaigns only.