U.S. COMPLAINT ON GERMAN SUBSIDY OF AIRBUS FOR PANEL.

Mar 8, 1991

U.S. COMPLAINT ON GERMAN SUBSIDY OF AIRBUS FOR PANEL.

GENEVA, MARCH 6 (BY CHAKRAVARTHI RAGHAVAN) – The U.S. complaint against the European Community over alleged provision of subsidies by the German Government for subsidising export sales of the airbus has been referred to panel under the 1979 GATT Subsidies Code.

The decision to refer the dispute to a panel was agreed to Wednesday at the meeting of the Subsidies Committee administering the code. But the terms of reference and the composition of the panel are yet to be settled.

Consultations are to be held between the U.S. and EC in an effort to agree on the terms of reference for the panel, but if no agreement is reached by 10 March, the standard terms of reference under the subsidies code will apply.

Under Article 18 of the code, the establishment of a panel is mandatory, within 30 days of request. The panel has to review the facts of the matter and in the light of it present its findings, within 60 days of its establishment, concerning rights and obligations of parties to the dispute under the relevant provisions of the GATT as interpreted and applied by the Agreement.

The U.S.-EC dispute over airbus is a long-running one and the complaint against German subsidisation is just one of the parts of the U.S. moves against the EC.

The airbus is a joint industrial effort of the EC involving German, French, British and Spanish governments all of whom provide some assistance or other.

The U.S. too undoubtedly is helping its aircraft manufacturers though most of the benefit accrues to them through the U.S. military contracts of research and development and production.

The airbus dispute which has been the subject of more than a year of bilateral consultations had been deadlocked between the U.S. insistence on getting the issue adjudicated through a panel in terms of the GATT subsidies code and the EC wanting to get it done through the separate 1979 Agreement on Trade in Civil Aircraft.

The Civil Aircraft Agreement does take note of the Subsidies Code provisions, but also refers to "special factors" applying to the aircraft sector, "in particular the widespread governmental support in this area, their international economic interests, and the desire of producers of all Signatories to participate in the expansion of world civil aircraft market".

However, the U.S. has resisted any reference to this agreement, and has chosen to confine its complaint and the adjudication of it in terms of the Subsidies Code and got its way Wednesday in the Subsidies Committee.

It has however agreed to consult with the EC on the terms of reference. While the EC hopes that the consultations will lead to a terms of reference which would enable the panel to look into the provisions of both the codes, if no agreement is reached, the standard terms of reference of the subsidies code would apply.

Without spelling out what this means, the EC has pointed out, that reference to a panel only on the basis of the subsidies code would result in a "partial" verdict.

When the panel report comes before the Committee again for adoption, the EC could block it and, as GATT Director-General Arthur Dunkel put it recently in the context of the re-started Uruguay Round, it could join "the cemetery of papers" of GATT.

There are four or five panel reports pending before the Committee where one or the other party has blocked adoption and unilateral trade retaliation between equally powerful trading partners is a double-edged sword.

The U.S. airbus complaint is over the exchange rate "insurance" scheme included as part of a comprehensive German Government plan to facilitate the merger of the MBB (Messerschmitt-Boelkow-Blohm) into the Damiler-Benz, in order to undertake the financial rescue of the MBB and its subsidiary Deutsche Airbus.

This subsidy had been approved by the EC Commission on 8 March 1989 and has been implemented by the German Government and, according to the U.S., a subsidy in excess of deutschemarks 390 million has been distributed by the German Government since the Subsidies Committee undertook conciliation efforts in January 1990 to resolve the dispute.

Under the insurance scheme, the German Government will provide exchange rate risk insurance through 2000. The government would cover most losses deemed attributable to lower actual market rates for the dollar than the $1 = DM 1.60 rate specified in the plan.

No premiums will be charged for the provision of this "insurance" nor will the government charge any interest on the funds advanced directly by the government.

The entire program, the U.S. has complained, is more extensive than previously indicated and extends to the German component suppliers as well as the Deutsche Airbus and the exchange rate subsidy alone would amount to an average of $2.5 million for each plane delivered by Airbus in 1990.

Despite repeated requests, the EC has not provided information on these matters to the Subsidies Committee, though it has done so to other fora, the U.S. said.

This exchange rate insurance scheme, the U.S. said, violated the subsidies code - Article 9 of the code and items (a), (j) and (1) of the illustrative list of prohibited subsidies under the code.

The EC has contended that the exchange rate scheme is no subsidy, and is not an export subsidy either since it applies also to aircraft sold within the European Community. Also since U.S. Boeing company can't fulfil the demand of the market, the subsidisation if any has not injured U.S. trade or industry and hence not actionable.

The aircraft industry, it argued before the subsidies committee Wednesday, is a special product whose specificity of trade has long been recognised in GATT with its own specific multilateral rules. While problems of coordination between different legal instruments could arise, the logical and equitable solution would be to apply the specific instrument governing the sector.

The U.S. choice of not using the aircraft code, but resorting to the subsidies code, would prevent examination of the issue from the point of interests of both parties and would thus deprive the EC of its rights under the code.

The issue, the EC told the subsidies committee, was "extremely sensitive" and case should be handled with care and in an exemplary manner and procedural battles should not poison the atmosphere.

"We only want to make sure that the panel will be able to hear and examine all the factual and legal arguments advanced by either party, that it will not, for purely procedural reasons, be barred from taking into account relevant arguments and legally applicable provisions".