Delayed Fight: The World Trade Organization Dispute Settlement Mechanism, Negotiation, and the Transatlantic Conflict over Commercial Aircraft

Article excerpt

Abstract: For over thirty years, the United States and the European Union have waged a bitter and seemingly eternal political battle over the manufacture and trade of large commercial aircraft. In 2005, they brought this dispute to the World Trade Organization by litigating through its Dispute Settlement Mechanism. With the arrival of decisions from the WTO Dispute Settlement Body, this long-running conflict enters a new phase. This Note proposes that DSM litigation will result in a negotiated settlement between the two parties. Starting with the histories of both the DSM and the LCA industry, it delineates how the WTO has created a system that continually encourages states to settle through the DSM's textual provisions and extrinsic effects. The Note analyzes why and how a negotiated settlement will come about, building upon the settlement-oriented nature of the DSM and the industry's history.

Introduction

Halfway through its second decade, the World Trade Organization (WTO) is experiencing growing pains.1 Its current trade liberalization negotiations, the Doha Round, continue to stagnate2 as its goal of en- couraging free trade has suffered in the wake of the global recession and protectionism by some states.3 Also, one of its key accomplishments, the quasi-judicial Dispute Setdement Mechanism (DSM), has come un- der increasing criticism.4 Even those who praise its efficacy concede that the DSM needs reform and has fallen short of resolving large, complex, and contentious international trade disputes.5

The transatlantic dispute over commercial aircraft is a prime ex- ample of such a complex and contentious case.6 Over the last three decades, firms in the United States and the European Union (EU) (and its predecessor, the European Economic Community (EEC) ) have engaged in a high-stakes commercial competition to manufacture and sell commercial planes with over 100 seats, known as large commercial aircraft (LCA) ? This industry is especially lucrative: the combination of high-technology characteristics generating beneficial "spillover" effects and annual sales averaging over $100 billion lead governments to take an active interest in the success of their domestic aircraft firms.8 Addi- tionally, the market dynamics of commercial aircraft production have created a duopoly: the world's sole two producers of LCA are the Unit- ed States' Boeing and the EU's Airbus.9

This competition is fierce, and the two sides do not perceive it as fair.10 Both firms receive financial support from their governments- Boeing through indirect subsidization in the form of U.S. military con- tracts and tax incentives, and Airbus through direct EU subsidies.11 Such behavior has led to allegations by both sides that the other is gaining an unfair advantage, and each has attempted to alter the other's policy.12 These attempts have at times resulted in interstate agreements, both bilateral and through the WTO's predecessor, the General Agreement on Tariffs and Trade (GATT).13 Yet the dispute has also resulted in pub- lic condemnation and confrontation through litigation and trade re- strictions.14

In June 2005, the United States filed a DSM claim, alleging illegal EU subsidization of Airbus;15 the EU immediately launched a counter- suit against the United States and Boeing.16 The case is the largest and one of the most complex ever submitted to the DSM,17 taking five years for the Dispute Settlement Body (DSB) panel to issue its decision in the U.S. case.18 An average DSM case takes approximately twelve months from filing to decision adoption.19

Per WTO procedure, the decision in the U.S. case remained confi- dential until the final public report was issued in June 2010.20 The re- port contains the Panel's ruling that some of the EU's "launch aid" of loans and other financial support constitutes a violation of WTO agree- ments, as well as enforcement mechanisms to terminate such subsidiza- tion.21 A separate panel released its decision in the EU suit in March 2011, labeling various U. …