The 1992 EC/US Agreement on Trade
in Large Civil Aircraft
79. A bilateral agreement between the EU and the
US on financial support for large civil aircraft has been in existence
since 1992 (EC-US Agreement on Trade in Large Civil Aircraft).[172]
Signed under the auspices of the General Agreement on Tariffs
and Trade (GATT), the agreement established: limits on, interest
rates and repayment periods for, the public support given to all
Airbus aircraft and aircraft with capacity of 100 or more seats
manufactured in the US ;[173]
a number of mutual commitments to monitor the agreement; and institutional
arrangements for future dialogue between the two parties on this
issue. More specifically:
— Restriction
of launch aid to 33 percent of total development cost, with 25
percent to be repaid at the cost of government borrowing and the
remaining eight percent to be repaid at the cost of government
borrowing plus one percent;
— A maximum reimbursement period of 17
years, and 20 percent of the repayments to be made over the first
40 percent of aircraft deliveries (and 70 percent over the first
85 percent);
— An overall limit per annum on indirect
support equivalent to three percent of the civil aircraft industry's
annual commercial turnover in the country concerned and four percent
of the annual commercial turnover of any one firm; and
— Controls on general purpose loans and
sales inducements.[174]
80. The agreement outlined two forms of support:
'direct', such as RLI favoured by EU Member States' governments;
and 'indirect' such as R&D support favoured by the US Government.
The current dispute
81. In recent negotiations on a renewed deal, the
US (and Boeing) were looking to ban all new state aid to large
civil aircraft, but these discussions broke down in September 2004.
This prompted the US to initiate the first steps towards the WTO's
Dispute Settlement Proceedings in October 2004, by requesting
formal consultations with the EU and the governments of the UK,
France, Germany and Spain. The US Government alleged that $15
billion in 'illegal aid' had been paid to Airbus, particularly
for the new A380 'super-jumbo' programme.[175]
Their objections focussed around EU levy-based investment programmes
(such as RLI), which, the US claimed, were given at either zero
or below market rates of interest, and the fact that RLI did not
have to be repaid if a new model was not successful.[176]
82. On the same day, the EU retaliated by launching
counter-proceedings against the US, alleging that Boeing had 'illegally'
been given $23 billion by the US public sector.[177]
The EU claimed that the US Government had subsidised Boeing mainly
through R&D grants from NASA and Department of Defense programmes
but also through individual US States offering tax breaks and
grants to attract Boeing manufacturing plants.[178]
Ambassador Robert Zoellick, the US Trade Representative, also
announced that the US would terminate the 1992 agreement, exercising
a right provided in the agreement itself, a move which was rejected
by the EU.[179]
83. When we asked the Department for their views
on the WTO negotiations, officials took pains to stress to us
the political sensitivity involved: "this case is at a very
sensitive stage at the moment so I would rather not speculate
on what the outcomes might be".[180]
Shortly after we heard the Department's evidence, the WTO Director-General,
Supachai Panitchpakdi, announced that the EU and the US were "to
negotiate a bilateral resolution to their ongoing dispute concerning
aircraft subsidies rather than continue the cases they had brought
in October to the WTO's Dispute Settlement Body".[181]
We will continue to maintain a watching brief on developments
in this highly sensitive case.
171 For example see Appendix 14, para 6.3.1, Appendix
2 para 3.3 and Q 70 (Airbus UK) Back
172
Appendix 2, para 3.3 Back
173
Appendix 10, section 1 Back
174
Trade and Industry Committee, British Aerospace Industry,
para 97 Back
175
WTO, European Communities and Certain Member States - Measures
Affecting Trade in Large Civil Aircraft - Request for Consultations
by the United States, DS316, 12 October 2004 Back
176
The communication also claimed that a loan to EADS from the European
Investment Bank for the A380 could be considered an export subsidy
in breach of Articles 3.1(a) and 3.2 of the WTO Agreement on Subsidies
and Countervailing Measures (SCM Agreement). Back
177
WTO, United States - Measures Affecting Trade in Large Civil
Aircraft - Request for Consultations by the European Communities,
DS317, 12 October 2004 Back
178
Appendix 2, para 3.3 Back
179
See: US Trade Representative, U.S. Files WTO Case Against EU
Over Unfair Airbus Subsidies, Press Release, 6 October 2004
and European Commission, US-Boeing: EU rejects US unilateral
abrogation of the 92 aircraft agreement, Press Release, 8
October 2004 Back
180
Q 211 (Mr Scott) Back
181
WTO, Supachai welcomes EU-US decision on aircraft dispute,
press notice 394, 11 January 2005 Back
