June 13, 2005: U.S. Statement to the DSB: MEASURES AFFECTING TRADE IN LARGE CIVIL AIRCRAFT

Statements by Ambassador Linnet Deily, U.S. Representative to the WTO, at the June 13 meeting of the WTO Dispute Settlement Body.

Item 1. EUROPEAN COMMUNITIES AND CERTAIN MEMBER STATES - MEASURES AFFECTING TRADE IN LARGE CIVIL AIRCRAFT

A. REQUEST FOR THE ESTABLISHMENT OF A PANEL BY THE UNITED STATES (WT/DS316/2)

Mr. Chairman, as described in our panel request of May 31, 2005, the United States is concerned that certain measures of France, Germany, the United Kingdom, Spain, and the European Communities provide subsidies that are inconsistent with their obligations under the SCM Agreement and the GATT 1994. The subsidies at issue benefit Airbus, the European manufacturer of large civil aircraft.

The United States has long been concerned about the subsidization of Airbus. Over its 35-year history, Airbus has benefited from massive amounts of EU member State and EC subsidies that have enabled the company to create a full product line of aircraft and gain more than a 50 percent share of large civil aircraft sales. Every major Airbus aircraft model was financed, in whole or in part, with government subsidies taking the form of "launch aid" – that is, financing with no or low rates of interest, and repayment tied to, and entirely dependent on, sales of the financed aircraft. Moreover, if a particular model does not sell well, Airbus does not have to repay the financing. The Airbus A380 “super jumbo” alone received approximately $3.7 billion in launch aid subsidies from France, Germany, Spain, and the UK.

Airbus has also received numerous other types of subsidies. For example, Airbus has received over $1 billion in subsidized financing from the European Investment Bank for use in developing several of its aircraft models. Likewise, EU member State governments have spent over € 1 billion in recent years to create infrastructure for the specific use of Airbus. For example, in 2000-2003, the City of Hamburg spent € 751 million to fill in a protected wetland on the River Elbe to create additional land for Airbus’s use at its production site in Hamburg.

EU member State governments have also assumed and forgiven billions of euros worth of debt owed by Airbus, and have made numerous equity infusions and grants into the Airbus companies that private investors would not have made.

In addition, the EC and EU member States have provided billions of euros to Airbus for civil aeronautics research and development. The EC’s Sixth Framework Program alone allocated over € 1 billion to such projects. Most of the funding at issue takes the form of outright grants that Airbus has used to underwrite its commercial research. And unlike civil aeronautics R&D in the United States, EC-funded civil aeronautics R&D focuses on producing results that Airbus can apply to products in the near and medium term.

Airbus has used these subsidies to seize more than half of the large civil aircraft market at the expense of its U.S. competitors. And yet it continues to seek and receive new subsidies. It is time for the subsidies to end.

Mr. Chairman, the United States considers that the EC and member State subsidies to Airbus are inconsistent with Articles 3.1(a), 3.2, 5(a), 5(c), 6.3(a), 6.3(b), and 6.3(c) of the SCM Agreement, and Article XVI:1 of the GATT 1994.

On November 4, 2004, the United States and the EC and the member States held consultations. Unfortunately, those consultations failed to resolve our concerns.

Accordingly, the United States is requesting that the DSB establish a panel to examine these matters, in accordance with Articles 4.4 and 7.4 of the SCM Agreement and Article 7 of the DSU. Further, should a panel be established today, as described in our panel request of May 31, 2005, we also request that the DSB initiate the procedures provided for in Annex V of the SCM Agreement, pursuant to paragraph 2 of that Annex. At a future meeting, we will also be asking the DSB to designate a representative to serve the function of facilitating the information-gathering process pursuant to paragraph 4 of that Annex. The United States is exploring with the EC options for naming that representative.

Item 2. UNITED STATES - MEASURES AFFECTING TRADE IN LARGE CIVIL AIRCRAFT

A. REQUEST FOR THE ESTABLISHMENT OF A PANEL BY THE EUROPEAN COMMUNITIES (WT/DS317/2)

· Mr. Chairman, the United States is disappointed that the EC has requested a panel on this matter. The EC’s request is broad, but without merit.

· We intend to vigorously defend the measures at issue.

· In that regard, we note that not all of the items identified by EC in its panel request are “measures,” including, for example, the High Speed Research Program Technology Transfer Control Handbook.

· We also note that many of the alleged programs and measures contained in this panel request were not consulted upon and were not included in the EC request for consultations. Therefore, the DSU does not permit the EC to pursue panel proceedings with regard to those programs and measures at this time.

· For example, 13 of the 28 alleged subsidy programs referenced in the panel request were not listed in the consultation request. In addition, more than half of the underlying laws and regulations cited in the panel request were not provided for in the request for consultations.

· Separately, we are surprised to see that the EC included the procurement of military aircraft and military research and development funding as alleged subsidies to large civil aircraft.

· The fact is, Airbus and its corporate parents, EADS and BAE Systems, also participate in the US defense market. BAE Systems alone is one of the top ten participants in the very programs the EC is attacking as subsidies to U.S. large civil aircraft producers.

· Airbus and its corporate parents also participate in many military procurements in Europe, such as the A400 and the Eurofighter.

· We have been carefully studying these programs. We note that the EC has provided billions of euros in military R&D funding to Airbus and its corporate parents, EADS and BAE Systems. We had assumed that, like our military procurements, these programs were tied to military purposes. However, given the EC’s apparent belief that military R&D is related to civil aircraft technology, we may need to reevaluate our assumptions about the A400 and Eurofighter programs.

· In light of these considerations, the United States is not in a position to accept the establishment of a panel at today’s meeting.