Abstract
AbstractThis paper analyzes the most recent WTO Appellate Body (AB) report in a series of disputes between the US and the EU over government support to aircraft manufacturers Boeing and Airbus. The measures under dispute in US–Tax Incentives were investment promotion subsidies provided to Boeing by the State of Washington. The EU contended that the Washington State subsidies, which were conditioned on Boeing locating production of specific parts of its new 777X program within the state, were prohibited import substitution subsidies. The AB took this case as an opportunity to consolidate WTO case-law on import substitution subsidies. It confirmed a single legal standard for export promotion and import substitution subsidies but with a stricter requirement for a finding of a violation in the case of import substitution subsidies. We argue that the AB, in allowing the subsidies to Boeing, unnecessarily blurred the distinction between contingency in law and contingency in fact by ruling that identifying a condition requiring the use of domestic inputs would be a necessary element for a determination of a de facto contingency. This appears to be an unduly formalistic view that leaves little legal space for any de facto contingency claim in the future.
Highlights
Subsidies regulation is still among the most controversial aspects of WTO law, at least from an economics perspective
We argue that the Appellate Body (AB), in allowing the subsidies to Boeing, unnecessarily blurred the distinction between contingency in law and contingency by ruling that identifying a condition requiring the use of domestic inputs would be a necessary element for a determination of a de facto contingency
The EU challenged certain aerospace tax incentives promulgated by the State of Washington which offered (a) a business and occupation (B&O) tax rate of 0.2904% regarding the manufacture and sale of commercial airplanes and (b) various tax credits or exemptions relating to product development activities, property taxes, and sales and use taxes
Summary
Subsidies regulation is still among the most controversial aspects of WTO law, at least from an economics perspective. The Appellate Body clarified in this dispute the scope and limits of these subsidies, which are disciplined under Article 3:1(b) SCM Viewed from this angle, US–Tax Incentives is a landmark case with respect to import substitution contingency. Such effects may be inextricably linked to the nature of the industry (bulky inputs; economies of scale; or significantly high transport costs that create incentives for locating production next to assembly sites); but in this case, how far should a dispute resolution body go with its analysis of the relevant market and the effects of certain measures on the marketplace?
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