I. Introduction

On October 2, 2019, the World Trade Organization (WTO) issued an award agreeing that the US had suffered significant loss of nearly USD 7.5 billion per year from the preferential loans granted by the EU Governments to Airbus A350 and A380 aircraft.  Accordingly, the WTO “turned on the green light” to allow the U.S. to impose additional taxes on USD 7.5 billion per year worth of goods per year from EU due to the EU’s unauthorized subsidy policies for Airbus.  This award is expected to likely make tensions between the US and the EU more serious than it used to be, the EU may implement measures or policies to retaliate against the US. 

II. Fact of Case

The battle between Boeing and Airbus dates back to 2004, the year after the European aircraft maker’s deliveries overtook those of its US rival for the first time.  The US. challenged subsidies that the European aerospace group had received as long ago as the 1970s. Washington has claimed that USD 22 billion in illegal funding has found its way to Airbus.  

The biggest and most impactful of the subsidies is known as launch aid – highly subsidized loans to Airbus for the development of new products with the interest rates on the loans which are significantly less than those of the commercial lenders. Launch aid provides significant advantages to Airbus, for instance, artificially low cost of capital, lower program risk, and the ability to price its products lower than the competitors.  It also enables Airbus to introduce new products faster than it would be able to do otherwise.  

In 2006, it was the US which first filed a case with the WTO claiming that Airbus, which is jointly owned by Germany, France, Spain and Britain, had received USD 22 billion in illegal subsidies. On the other hand, the EU retaliated with a counter case, alleging that Boeing had received USD 23 billion in “trade-distorting” subsidies in the US. mainly for its research and development projects. 

III. History of Dispute 

In June of 2010, the WTO’s Dispute Settlement Body (DSB) ruled in favor of the US on 80% of the total alleged subsidy amounts, and in May of 2011, the Appellate panel upheld all of the key findings of the earlier panel.  The DSB ruled that Airbus had received USD 18 billion of illegal subsidies, including USD 15 billion of launch aid.  Airbus-sponsor governments were given until December of 2011 to remove the harmful effects of all illegal subsidies.  

On September 22, 2016, the DSB confirmed that the European governments not only failed to meet the compliance deadline to remedy USD 17 billion worth of past subsidies provided to Airbus, but also that an additional USD 5 billion in illegal launch aid has since been provided to support the A350.  In a last effort, the EU appealed that ruling.  The WTO rejected the appeal in May of 2018, opening the door for the U.S. Government to initiate the WTO process for imposing tariffs on European exports to the United States to mitigate these violations. 

 IV. Parties’arguments:

1. Allegations from the US.

According to the US, after 14 years of litigation, and 10 years since the original panel findings against the EU has not yet to take any action or a policy, meaningful to reform their subsidies. 

The SCM Agreement and the Understanding on Rules and Procedures governing the settlement of disputes (DSU) explicitly provide that EU’s subsidy acts are prohibited and the US now to obtain authorization to impose countermeasures commensurate with the degree and nature of those adverse effects. Consistent with the DSU and the parties’ joint sequencing agreement, the “technical” disagreements can be adjudicated relatively quickly, so that the balance of concessions can be restored and the EU is given appropriate additional incentive to pursue in earnest a lasting solution.

2. Response from the EU 

According to the EU, Article 22.2 of the DSU provides no basis for authorizing countermeasures for finding of impedance and the U.S errs in requesting recurring countermeasures and in rejecting the relevance of “Trade Effects” to quantify the value of adverse effect. 

Besides, the EU also argued that countermeasures should be commensurate with the adverse effects determined to exist in each product market and the US has given unrealistic damage figures with the quantifying of the degree of lost sales and impedance determined is flawed. The belated submission of primary evidence by the U.S also prejudiced the EU’s due process rights. 

In contrast, the DSB rejected the EU assertion in the EU’s counter-complaint and recognized that the EU’s subsidies for Airbus are prohibited in pursuant to the SCM Agreement. Therefore, the US is allowed to impose its sanctions equivalent to actual losses. The US has requested that the WTO schedule a meeting to approve a US request for authorization to take countermeasures against the EU. Pursuant to WTO rules, the EU is not allowed to retaliate against WTO-authorized countermeasures.  

V. Finding of WTO

OJune 1, 2011, the WTO’s DSB found that the certain subsidies caused displacement and significant lost sales within the meaning of the Agreement on Subsidies and Countervailing Measures (SCM Agreement), specifically, caused massive effects to the Boeing of the US. According to the SCM Agreement, the EU were responsible to take appropriate steps to remove their relevant subsidies.  

After considering the arguments of both parties with mandate deliberation, the Arbitrator have calculated the total annualized value of the adverse effect determined to exist, expressed in 2013 US dollar terms, amounts to USD 7,496.623 million. Thus, according to the final award, The US may request authorization from the DSB to take countermeasures with respect to the EU, at a level not exceeding, in total, USD 7,496,623 million annually. 

 VI. Implication on Vietnam. 

Vietnam is also subject to the SCM Agreement adopted by the WTO since Vietnam became a member of the WTO in 2007.  The SCM Agreement addresses two separate but closely related topics – (i) multilateral disciplines regulating the provision of subsidies, and (ii) the use of countervailing measures to offset injury caused by subsidized imports.  Multilateral disciplines are the rules regarding whether or not a subsidy may be provided by a Member State.  Countervailing duties are a unilateral instrument, which may be applied by a Member State after an investigation by that Member and a determination that the criteria set forth in the SCM agreement are satisfied. 

Vietnam, as a developing country, is entitled to more favourable treatment with respect to subsidies disciplines.  For instance, certain subsidies related to Vietnam’s privatization programmes are not actionable multilaterally.  With respect to countervailing measures, Vietnamese exporters are entitled to more favourable treatment in regard to the termination of investigations where the legal of subsidization or volume of imports is small. 

Nevertheless, there are always risks associated with laws, regulations and policies adopted by the government which might be regarded as subsidies breaching Vietnam’s international commitments.  These risks have been increased especially under recent development of new high-tech industries (e.g., automobile) that have received significant governmental supports.  A careful consideration and approaches are highly desired considering the tentions derived from the trade war across the globe. 


This LBN newsletter are NOT legal advice. Readers are advised to retain a qualified lawyer, should they wish to seek legal advice. VCI Legal are certainly among those and happy to be retained, yet VCI Legal is not to be hold responsible should any reader choose to interpret/apply the regulations after reading this LBN without engaging a qualified lawyer.