The Problem of Subsidies as a Means of Protectionism: Lessons from the WTO EC-Aircraft Case

Article excerpt

In this article, I examine the problem of subsidies in international trade. In this regard, I consider that a possible purpose of international regulation of subsidies is to fight protectionist subsidies, as opposed to subsidies used for other goals. With this purpose in mind, I then consider whether the Agreement on Subsidies and Countervailing Measures ('SCM Agreement') (1) can be said to reflect this purpose. I also discuss whether the interpretations of the SCM Agreement in the EC--Aircraft (2) dispute provide any insights on this issue. The dispute involved alleged subsidies to the aircraft maker Airbus by the European Union and certain member state governments, and has been one of the highest profile and most commercially significant disputes in the history of the WTO. The issues in the case were extensively argued by two of the leading WTO members, and thus its findings on these issues are particularly significant. Reviewing the EC--Aircraft Panel and Appellate Body findings on a number of specific legal issues, I conclude that a case can be made that the SCM Agreement and the EC--Aircraft dispute reflect an underlying purpose of the SCM Agreement of fighting protectionism.

CONTENTS

I   Introduction

II  The Problem with Subsidies (If There Is One): Subsidies Regulation
    asa Way to Fight Protectionism

III International Subsidies Regulation through the SCM Agreement
    A Prohibited Subsidies
    B Actionable Subsidies
    C Non-Actionable Subsidies
    D Conclusions on Existing SCM Agreement Rules

IV  Rethinking Subsidies Regulation: The Sykes Critique

V   The WTO EC--Aircraft Panel and Appellate Body Reports on Subsidies
    to Airbus

VI Protectionism as the Underlying Focus in the EC--Aircraft Dispute
    A Export Subsidies
    B Specificity
    C Displacement and Competition in the Marketplace

VII Conclusions

I INTRODUCTION

The WTO disputes between the United States and the European Union on subsidies to their respective aircraft manufacturers, Boeing and Airbus, are some of the most high profile and commercially significant disputes in the history of the WTO. They deal with a number of important legal interpretations of the WTO's Agreement on Subsidies and Countervailing Measures ('SCM Agreement'). The SCM Agreement has risen in importance in recent years due, in part, to the very large subsidies and bailouts resulting from the 2008 financial crisis. Government actions of this kind have prompted accusations that these subsidies violate trade rules (3) and calls to revise the SCM Agreement so as to allow such subsidies. (4) The Airbus-Boeing dispute arose many years before the crisis (and, in fact, some aspects of it go all the way back to the General Agreement on Tariffs and Trade (5) days), so it has no direct relationship with the recent developments. Nevertheless, the legal decisions in these cases have the potential to shape the WTO's subsidy rules in several areas, and thus have an impact on the recent financial crisis-related subsidies specifically, and on international subsidies regulation more generally. With the SCM Agreement currently in the limelight, and WTO panels and the Appellate Body undertaking interpretations that have important systemic implications, questions about the fundamental basis of subsidies regulation arise: why are there disciplines on subsidies, and what goals should the international regulation of subsidies pursue?

In this article, I look at international subsidies regulation and the EC--Aircraft case (6) through the lens of one of the possible purposes of subsidies disciplines: fighting protectionism. I first discuss the issue of how subsidies, which can be used for many reasons, cause problems in the area of trade policy. In this context, I briefly examine the origins of governmental attempts to regulate subsidies as a way to rein in 'indirect protectionism' at the economic conferences held by the League of Nations in the 1920s and 1930s (these talks provide a rich source of thinking about subsidies regulation, and I come back to them in other parts of this article). …