World Trade Organization, DS487, United States - Conditional Tax Incentives for Large Civil Aircraft - International Economic Law and Policy

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World Trade Organization, DS487, United States - Conditional Tax Incentives for Large Civil Aircraft - International Economic Law and Policy

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Themes

DS487, SCM Agreement, subsidies contingent upon use of domestic goods, tax incentives for large civil aircraft, conditional tax measures, dispute settlement, European Union vs United States, subsidies de jure, subsidies de facto, business and occupation aerospace tax rate, tax advantage, domestic over imported goods, Appellate Body report, Panel report, international economic law, trade dispute, subsidies and countervailing measures, aerospace tax measures, commercial airplane manufacturing, siting provisions, factual application of tax measures, prohibited subsidies, contingent subsidies, tax measures, consultation request, Panel request, legal basis for complaint, international trade law, trade policy, dispute resolution, conditional subsidies, tax provisions, aerospace industry subsidies, trade law experts, SCM Agreement Article 1, subsidies definition, countervailing measures, trade law and policy, WTO World Trade Organization, SCM Subsidies and Countervailing Measures, WTO World Trade Organization law, complaint, EU European Union, US United States, WTO World Trade Organization agreement, DSB Dispute Settlement Body, violation

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Abstract

The dispute involves the European Union, acting as the complainant, and the United States, serving as the respondent. This dispute has been brought to light in accordance with the dispute settlement rules of the World Trade Organization. Like many disputes within the WTO framework, it pertains to an alleged violation of agreed-upon trade rules by one of its member entities.

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[...] It concludes that the determining factor is once again the location of manufacturing and assembly activities when deciding whether to apply the tax and financial benefits, rather than the nature of the products used, whether domestic or imported. According to the Appellate Body, in this instance, the B&O tax rate is not contingent upon the use of domestic goods. Consequently, the Appellate Body reverses the Panel's conclusions. The Appellate Body concludes that the provisions adopted by the United States do not violate the SCM agreement as the tax provisions cannot be considered prohibited subsidies according to this agreement. [...]

[...] Instead, the Panel considered that the condition pertains to the location of manufacturing or assembly, rather than the goods used. The European Union argues that favoring domestic products over imported ones is unavoidable in this scenario. The appellate body validates the Panel's interpretation, asserting that the use of domestic products is not an absolute requirement to receive the subsidies. Additionally, they confirm the Panel's interpretation that the measures mandate the subsidy recipient to initiate the manufacture of a commercial airplane, fuselages, and wings, but not necessarily the use of domestic goods. [...]

[...] Legal basis for the complaint: First, the European Union considers that the tax measures constitute subsidies as defined in Articles 1 and 2 of the Agreement on Subsidies and Countervailing Measures. According to Article 1 of the SCM, subsidy shall be deemed to exist if there is a financial contribution by a government or any public body within the territory of a Member". In this instance, the financial contribution materialized in the form of "government revenue that is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits)". [...]

[...] The United States didn't violate any rule on trades and therefore no recommendations were made by the Appellate Body regarding this dispute. The recommendations made by the Panel were overturned in favor of the United States. Given that the Appellate Body report did not conclude that the United States should bring the tax measures into conformity with the WTO, no further action has been taken in this case since September 2017. References: - Kugler K. United States - Conditional Tax Incentives for Large Civil Aircraft (US-Tax Incentives), DS487. World Trade Review. 2018;17(1):169-172. [...]

[...] In this case, the conditions involved siting the production of the wings and final assembly for a new commercial aircraft model or variant in Washington State, as well as maintaining all wing assembly and final assembly of such commercial aircraft exclusively within the state. Article 4.1 states that "whenever a Member has reason to believe that a prohibited subsidy is being granted or maintained by another Member, such Member may request consultations with such other Member". It is on these grounds that the consultation is sent to the United States. [...]

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