Jan 17, 1992

AIRBUS PANEL RULING WILL ADD TO TENSIONS.

GENEVA, JANUARY 15 (CHAKRAVARTHI RAGHAVAN) – A ruling against the European Community on the U.S. complaint over the Airbus subsidies is expected to add to the current trans-Atlantic trade tensions and could even complicate efforts to conclude the Uruguay Round.

While the Agricultural issue has taken the center stage in the EC complaints over the Dunkel package, and push for changing it, there are also other parts of the package like the subsidies code agreement where there are some serious differences.

With the airbus ruling going against the EC (and against German practice in particular), U.S. and other hopes of being able to isolate France from Germany and others over agriculture will vanish.

Some EC nonofficial sources went so far as to say that the Round would now be finished.

While the specific complaint, and ruling, relates to Germany's exchange rate insurance plan and its resulting subsidy to Daimler-Benz production of airbus parts, the U.S.-EC dispute is part of a long-running one, with the U.S. Aircraft industry, though accounting for nearly 80% of the market share objecting to Airbus inroads.

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

While the U.S. is objecting to these, the EC in turn has been that the American manufacturers including Boeing and MacDonnel Dogulas, are also benefiting from the extensive military contracts and programmes, using the spin-off from these or their civilian production lines.

The ruling by the panel set up by the GATT’s Tokyo Round Subsidies Code Committee has been sent in the first instance to the two parties, and will then be presented to the Subsidies Code Committee and become available to GATT CPs.

Beyond the information that has come out from European aircraft industry sources, the details of the ruling are not available and hence it is difficult to make a judgement of its nuances and implications.

But some reports suggest that it is at best a partial victory for the U.S. According to these, the panel has accepted that the German exchange rate insurance scheme benefits Daimler-Benz and thus a prohibited subsidy, but that it does not constitute export subsidy in terms of the Airbus as a finished product.

However, coming as it does at a time when tensions are mounting between the EC and the U.S. - with Heads of States now getting publicly involved and committed, as has been done now by President George Bush and President Francois Mitterand - EC sources suggest that it would merely add to the trade tensions without necessarily contributing to any solution over the dispute itself or over the larger questions of the Uruguay Round and the GATT.

When the specific dispute was brought up by the U.S. under the subsidies code, the EC had sought to get the matter also looked into from the provisions of the Civil Aircraft Agreement. But the U.S. refused, and obtained the establishment of a panel under the post-Montreal mid-term review agreement for automaticity in dispute settlement cases until the last stage of adoption.

In March 1991, when the panel was set up, the EC had complained that the reference of the dispute to a subsidies code panel, purely in terms of the provisions of the code, would only result in a partial ruling. This was interpreted then to mean that the EC would block adopting of the ruling, if it went against it.

The specific U.S. complaint related to Germany's Dollar-Deutsche Mark exchange rate support mechanism for Daimler-Benz, which absorbed the ailing Deutsche Airbus as part of German restructuring of the aerospace industry.

Under it, Daimler-Benz was entitled to get compensation from the German government to make up the exchange rate differences if the value of the dollar averaged over a year between DM 1.60 and 1.80 for a dollar.

The U.S. has claimed that the subsidy amounts to 2.5 million dollars per aircraft, while the EC before the subsidies committee had contended that it was not an "export subsidy" since the benefits of the scheme applied both to domestic and export sales, and that in any event the subsidisation had not injured U.S. trade or industry since the U.S. manufacturers cannot fulfil the demand of the market.

The U.S. has also been threatening to bring up other complaints over the Airbus issue.

The subsidies code problem, and the Uruguay Round agreement on it, relate to an even longer dispute and difference between the U.S. and Europe and others relating to issues of "subsidies", how and when they become actionable, and how terms like "serious prejudice" and "serious injury" to interests of other contracting parties and domestic industries are to be determined, etc.

The new draft Uruguay Round agreements, while clarifying some matters relating to subsidies, dumping and counter-vailing duty actions, have still left considerable leeway for subjective judgements by the countries initiating actions.

The subsidies agreement proposed now provides that there would be presumption of serious prejudice in the event of a subsidy exceeding five percent - with the burden of proof automatically shifted to the subsidising country.

The EC and several of its members have been "unhappy" with this and the percentages.

While in the specific complaint, the 2.5 million value of subsidy on each aircraft (put by U.S.) would probably be less than five percent, cumulating various other subsidies and aids for aerospace industry would make U.S. tasks easier in future.