‘Flying High in a Plane’ Appellate Body Report, European Communities and Certain Member States – Measures Affecting Trade in Large Civil Aircraft

This article reviews the Appellate Body decision in the implementation phase of the EC–Aircraft dispute. Focusing on some of the key findings, we assess whether they are legally and economically correct. We conclude that (a) though still unclear, the test for establishing de facto contingency on import substitution subsidies is probably too demanding; (b) though legitimate, the interpretation of the remedy of removal of the adverse effects for actionable subsidies is the weakest and most deferential possible; (c) the hesitation in confirming that quantitative methods are the key tool to define the relevant market is unwelcome; and (d) the Appellate Body correctly recognize the importance for Panels to consider, in the context of the serious prejudice analysis, whether the like product of the complainant has been subsidized. Most importantly, the analysis of this case, set within the broader jurisprudence and practice, has led us to conclude that WTO subsidy disciplines are not particularly strong. The review of the main economic theories justifying subsidy control (strategic trade policy, terms of trade, private information, commitment theory) has shown that no single theory is able to fully account for subsidies and the need to control them. The key question is the definition of what we want to achieve by controlling subsidies, which is the main message sent to the policy-makers and negotiators that are currently considering law reform.

Part VI Global Approach of State Aid Law—WTO Law and EU Trade Defence Instruments, 1 WTO Subsidy Laws: The International Regulation of State Aid

This chapter focuses on the concepts of subsidy control under World Trade Organization (WTO), prohibiting certain types of subsidies that might have a harmful effect on economic activity in other WTO members. A major innovation of the Agreement on Subsidies and Countervailing Measures (SCM Agreement) was the classification of subsidies into three categories, often referred to as ‘red light’, ‘yellow light’, and ‘green light’. ‘Red light’ subsidies are prohibited per se, with no need to actually prove any adverse effect. The ‘yellow light’ or ‘actionable subsidies’ are not prohibited, but may be challenged only if they cause ‘adverse effects’. Under the ‘green light’ category, certain selected types of subsidies were non-actionable even if they were specific and caused one of the harms listed in Articles 5 and 6 of the SCM Agreement.

WTO Rules and Agricultural Development Cooperation between Developed and Developing Countries

For many developed countries with confined land resources and high costs of labour, agricultural farming in foreign territories provides attractive business opportunities. Such investment projects will also be welcomed by many hosting developing countries given the substantial effect of economic development and employment. In this sense, agricultural development cooperation at an international level could contribute to the solution of the North-South problem. Notwithstanding this necessity and potential contribution, it is doubtful whether the current WTO legal system can fully support this type of cooperation. Various governmental supports involving the cooperation projects could be determined as prohibited or actionable subsidies as well as discriminatory measures. WTO provisions regarding the special and differential treatment for the developing economies are of no help. This paper identifies legal problems involving agricultural development cooperation between developed and developing countries and explores ways to interpret relevant WTO rules and to amend them in order to solve the problems.

‘Optimal’ Retaliation in the WTO – a commentary on the Upland Cotton Arbitration

The Upland Cotton case raises a range of interesting issues regarding the rationale for retaliation in the WTO system and the proper approach to its calibration. These include: Should the approach to retaliation differ in cases involving prohibited or actionable subsidies? When should cross-retaliation be allowed? Should retaliation be based only on the harm to the complaining nation, or to other nations as well? And, most importantly, what economic content can be given to the standard of countermeasures ‘equivalent to the level of nullification or impairment’? We address these and other issues from both a legal and economic perspective, with particular attention to the question of what level of retaliation will restore the lost welfare of the complaining nation.