Notes regarding US - Boeing

United States — Measures Affecting Trade in Large Civil Aircraft (DS353)

https://ghum.kuleuven.be/ggs/publications/working_papers/2019-1/wp226-crochet-gustafssonedit.pdf
http://d-scholarship.pitt.edu/10650/1/Yi-ting_Cathy_Cheng_Dissertation.pdf
https://academic.oup.com/jiel/article-abstract/21/3/599/5049106?redirectedFrom=fulltext

Background
 This is the second complaint which is different from the DS 316
 This is mainly about an dispute between the EU and the US
 The case concerns wide range of subsidies granted to Being company (US) by US federal
agencies
NASA (concluded the contract with Boeing - R&D activities)
DOD
DOC
DOL
US States (Illinois; Kanakas; and Washington)
 EU argument:
subsidies were export contingent (prohibited) OR causes serious prejudice to EU interest (because
they also have an Airbus company - so obviously they didn’t like it)
Amount of subsidies challenged: USD 20 billion
Article 6.3 of SCM Agreement
 The law at issue concerns Article 3 (prohibited subsidies), however, it also concerns with Article
III of the GATT (national treatment) and Article III(8) provides that this provision does not apply
to actions that concerns government procurements.
 US had appealed on both the (1) NASA and the (2) DOD contracts
US’s argument: NASA had paid Boeing to conduct “research services”
AB: they involve composite of combination of various elements
They also distinguished between the purchase of services found in different sub sections
 Panel
Out of 20 billion, it only found 5.3 billion subsidies
Violation of Article 3.1(a) of the SCM Agreement
Said that the contract were NOT “purchase of services”, rather, it is principally its for the benefits
and use , rather than for the benefit and the use of the US government. Therefore, contracts
constituted a direct transfer of funds – US could not point to the panel to an example where
commercial entity would make such an payment under similar conditions
Most of the analysis went to the determination of the AMOUNT of subsidy
EU Appealed the finding of the panel
The key question that was posed to the tribunal was whether service purchase contracts are excluded
from Art 1 of the SCM?
The AB went through an VCLT style analysis
Analysis – however, the exclusion of service purchase contracts would raise systematic concerns
o It is not clear why (from the policy perspective), why government should be allowed to
subsidize a manufacturer through a service purchase agreement
o This is exactly what the panel said! (in contrast to AB) – panel emphasized that when a
contract would not be characterized as the service purchase agreement (like in the case of
Boeing), it should constitute as direct transfer of funds that is covered by Article 1).
o Panel’s approach would prevent certain SHAM contracts
 o BUT con is that it would work only for contracts that are obviously not a proper service
purchase agreements e.g. contract concluded primarily for the benefit of contractor and
the amount of renumeration is clearly disproportionate for the service provided.
o E.g. Boeing performing R&D services that genuinely serve only agency’s research
interest BUT if the government overpays, then such service purchase agreement is not
covered by the SCM Agreement
 This creates a loophole in the SCM Agreement
Another wrinkle point
o SCM is for goods and member states had made reservations that service subsidies will be
decided later under the GATS
o One would simply argue that all the subsidies pertaining to services would be dealt under
the GATS – however, there is a issue. That is, if subsidies are given via SERVICE
PURCHASE AGREEMENTS to a GOODS MANUFACTURER (as was in the Boeing
case)
o It is much less obvious about the subsidies granted to goods manufacturer – Article 1
does not offer an answer on how to distinguish whether subsidy recipient is only a service
provider or is also a good manufacturer.
DOD contracts
o

Contract between NASA and Boeing

• NASA was paying Boeing to conduct research on astronomic business
• The subsidies alleged by the EU includes:
• (1) funds paid for conducting R&D activities;
• (2) access to NASA facilities
• The US’s counterargument:
• NASA had paid Boeing to conduct “research services” (i.e. purchase of services as a financial
contribution is not covered by SCM Agreement)
• Panel
• Did a detailed interpretation of Article 1(a)(iii) in a VCLT way
• The (iii) only mentions “purchase of goods” only and not “services” - so their conclusion is that
drafters intended not to cover services
• However, the panel did make a disclaimer: saying that if the service contract is just a SHAM contract
in disguise of the purchase of goods contract then it falls under Article 1.
•

Services
• The US counterargument was that these contracts were contracts for the purchase of services of interest
to NASA – in other words, NASA was out-sourcing its R&D activities to Boeing – and purchase of
services as a financial contribution is not covered by Article 1 of the SCM Agreement.
• WTLN analysis: As to the second sub-clause of subparagraph (iii), where a government "purchases
goods," the Appellate Body noted that the goods are provided to the government by the recipient.
Noting the absence of the term "services" in this sub-clause, in contrast with the first sub-clause, the
Appellate Body explained that the Panel had interpreted this omission as an indication that the SCM
Agreement drafters did not intend measures constituting purchases of services to be covered as
financial contributions under Article 1.1(a)(1). The Appellate Body considered that it need not decide
this interpretative issue because it is not relevant for purposes of resolving this dispute, given its
finding above that the measures at issue resemble "joint ventures." As a result, the Appellate Body
"declare[d] the Panel's interpretation that 'transactions properly characterized as purchases of services
 are excluded from the scope of Article 1.1(a)(1)(i) of the SCM Agreement' to be moot and of no legal
effect." (Paras. 619-620) The Appellate Body also "declare[d] moot" the Panel's finding that the DOD
procurement contracts are properly characterized as "purchases of services" and thus are not financial
contributions under Article 1.1(a)(1). However, it did not complete the analysis on this issue. (FN.
1298)
•
•
•

• 1995 = ASCM
• The ASCM is an agreement on goods trade. Therefore, the regulations presume a situation in which
benefits from subsidies are provided with respect to goods. Although there may be subsidies that
affect service trade (such as government aid to teachers for educational service export), there is at
present no regulation of them. Subsidies concerning service trade are currently under negotiations
based on Article XV of GATS. Therefore, it is important to firstly ascertain whether subsidies
influence goods trade or service trade (or influence both).
• there are limits and issues in the ASCM. Firstly, the ASCM can only be applied to subsidies on goods,
and its provisions do not extend to subsidies for services and investments.
• Of course, the SCM Agreement is only applicable to trade in goods: its provisions do not apply to
services subsidies. There is no special agreement on subsidies for services, but GATS regulates
them insofar as they are not in compliance with a Member’s MFN and national treatment (“NT”)
obligations.

• subsidies granted to service suppliers are not regulated under the GATS or any other WTO Agreement.
In contrast to the ability of WTO Members to impose countervailing duties under the SCM
Agreement, there is, thus, no expressly authorised means of unilaterally addressing foreign services
subsidies. On the other hand, there is also no prohibition on unilaterally targeting services subsidies
equivalent to Article 32.1 of the SCM Agreement. Attempts at designing an instrument to take
unilateral action against foreign subsidies granted to service providers may nevertheless violate the
most-favoured nation (MFN) or national treatment obligations under the GATS, as these
disciplines apply as regards foreign services suppliers with an established commercial presence
abroad.99 This section therefore analyses both of these obligations in turn.

Standstill issue
 The debate in services remains at its most basic stage, as it has since in 1996. It continues to
founder upon the so-called “chicken and egg” problem: without a definition, members cannot
provide information to the WTO about their service subsidies; yet without this information,
members cannot make a definition. And without either, creating subsidy disciplines is impossible.
This problem is perceived by some members as an excuse for some developed countries to avoid
disciplines.
 the scope of application of the SCM Agreement is limited to trade in goods. While the GATS
includes an inbuilt mandate to further negotiate disciplines on service subsidies, as well as the
possibility to subject subsidies to nondiscrimination obligations, the GATS – unlike the GATT
and the SCM Agreement - does not set out the possibility to countervail subsidies.
o Either way – the issue is countervail subsidies
 o So does that mean, in any respect, there are only unilateral measures available for the
states to conduct? (like EU did under their proposal?)
 No substantive rules on service subsidies are available other than specific commitments included in
each WTO member's schedule.

The relevant document

- The GATT prohibits only export subsidies for non-primary products, in Article XVI(4), and
authorizes member states, in Article VI, to impose countervailing duties. Article XVI
GATT, although confirming that export subsidies “may have harmful effects for other
contracting parties”, confines itself to obliging member states who engage in
subsidization to notify other members and be ready to enter into discussion with the
affected ones. Special rules are set out for agricultural subsidies (Agreement on
Agriculture).9