International Economic Law and Policy Blog

The Airbus-Boeing Truce: What Exactly was Agreed?

Today the U.S. and EU announced a 5 year suspension of the tariffs that were in place after the WTO dispute settlement rulings in the Airbus-Boeing subsidy dispute. Lifting the tariffs is good news (although the U.S. made it clear that if the EU violates any "red lines" in terms of the provision of subsidies, the tariffs can be reimposed), but it's hard to get a sense of the details of the agreement. The EU press release explains that:

Under the Understanding on a cooperative framework for Large Civil Aircraft, the two sides expressed their intention to:

• establish a Working Group on Large Civil Aircraft led by each side's respective Minister responsible for Trade,
• provide financing to large civil aircraft producers on market terms,
• provide R&D funding through an open and transparent process and make the results of fully government funded R&D widely available, to the extent permitted by law,
• not to provide R&D funding as well as specific support (such as specific tax breaks) to their own producers that would harm the other side,
• collaborate on addressing non-market practices of third parties that may harm their respective large civil aircraft industries,
• continue to suspend application of their countermeasures, for a period of 5 years, avoiding billions of euros in duties for importers on both sides of the Atlantic.

And the White House fact sheet says the following:

Both sides agreed to the following general principles to guide their future cooperation:

Suspend the tariffs related to this dispute for five years. This signals a mutual determination to embark on a fresh start in the relationship. The agreement also retains flexibility for the United States to reapply tariffs if we’re no longer competing on a level playing field. 

Establish a Working Group to analyze and overcome any disagreements that may arise between the sides. The Working Group will collaborate on and continue discussing and developing these principles and appropriate actions. The Trade Ministers leading the Working Group will consult at least yearly. The Working Group will meet on request or at least every 6months.

Ensure that our workers and industries can compete on a level playing field. The U.S. and EU agreed to clear statements on acceptable support for large civil aircraft producers that affirm the outcomes of the disputes and the intention of the parties to ensure that our workers and industries can compete on a level playing field.

Confront the threat we face from China’s ambitions to build a sector upon non-market practices, including:

• Meaningful cooperation on countering (1) investments in the EU and the United States by non-market actors, which can lead to the appropriation of technology; and (2) outward investments into China that are influenced by non-market forces. 
• Identifying where joint work is needed to take parallel action against non-market practices.
• Sharing information regarding these and other areas to forge a common approach in the large civil aircraft sector.

What I'm still not sure of is whether, practically speaking, the US/EU:

1) have agreed to make changes to their subsidy programs;

2) have agreed not to worry about each other's subsidy programs; or

3) just agreed to keep negotiating.

Here is a question by Jim Brunsden of the Financial Times at a joint press conference, which tries to get some answers:

on the agreement that's been reached on Airbus Boeing, to follow up really on the previous question, how confident are you both that this is really the end in terms of the disputes, given that there's still obviously work to do. And how do you plan to navigate the fact that the US and EU approaches to subsidizing commercial aircraft are so different, with launch aid in the European Union being a bone of contention for a very long time, and with, for example, Defense Department funding and other forms of R&D funding in the US. How do you plan to navigate that? Thank you very much.

European Commission Executive Vice-President Valdis Dombrovskis and U.S. Trade Rep Katherine Tai responded as follows:

Dombrovskis

on the first question, I think today, one can say we are grounding this Airbus Boeing dispute. And I think it's a major step towards really putting this dispute completely to the end. So we agree, a cooperative framework, and within five years of this cooperation, I think we'll be definitely able to put this, these principles to the rest. In a sense, what took so long, exactly, one of the difficulties is that we have very different approaches, how our large civil aircraft manufacturers are functioning, what kind of support is being provided. So, therefore, we were able to agree on a general principles on how this support is going to be provided, not on every possible detail, but then we are establishing Working Group which will continue to work on all sorts of topics, and make sure that what we do, we do in a cooperative spirit.

Tai

Well I'd like to say a couple of words here too. Again, I cannot underscore enough how this process has built my trust, and also my hope, in the partnership with EVP Dombrovskis, his team, and the European Union. In terms of my confidence level, it is very high, as of today. And again, I think I want to address the question of what does this agreement mean. And I noticed a theme in the questions as you're all grappling with it, which is ... my confidence level is high that we have resolved these disputes, because we are putting away our litigation briefcases and we have committed to each other, to sit down at the table, and to discuss pragmatically what is going to be best for competition between us, in the context of a world where our industries, and workers, will be facing competition like we've never seen before. So, again, my confidence level is high with respect to this industry, this dispute, but also the larger issue of US/EU collaboration and what democracies can accomplish when we work together in a spirit of pragmatism and effectiveness.

And here's a question from a separate press briefing by Tai:

Q Good morning. Yes, can you say — will Airbus have to repay the subsidies? Will Airbus have to pay back those subsidies? ...

AMBASSADOR TAI: ... Now there are a number of subsidies, but, again, I’ll interpret your question related to ones that are outstanding. And the answer there is that the agreement provides for continued discussion between the parties on outstanding and current subsidies to Airbus for the existing aircraft, which remain a concern for the United States.

We’ll continue to confer to address these outstanding support measures.

Based on this, I'm not totally sure what has been agreed to, and to what extent any differences of view here have been resolved. It is certainly clear that the U.S. and EU are going to cooperate with each other in relation to addressing China's subsidies in this sector, but what exactly they agreed to with regard to each other's subsidies is difficult to understand at this point. Ending the litigation is good in a number of respects, but if it just takes us back to the original pre-2004 negotiating positions, I'm not sure how much has been gained. On the other hand, now the negotiations will be taking place when there is greater concern about Chinese competition in this sector (and other sectors), so perhaps that will light a fire under the negotiators and both sides will be more willing to make concessions.

ADDED: The full text of the Understanding is here. To illustrate my points above, take a look at this sentence:

Each side intends to provide any financing to its LCA producer for the production or development of large civil aircraft on market terms.  

I can imagine there will be some disagreement on the scope of this sentence, and I'm not sure what the parties' expectations are here.

Financial University Organizes Conference on Russia and the WTO

On 19-20 May 2015, the Financial University of the Russian Federation held its first international conference on the topic of "WTO Law in the Legal System of the Russian Federation: Problems of Application and Teaching."  To my knowledge, this was the first international legal conference held to address the Russian Federation's 2012 accession to the World Trade Organization (WTO) and the current role of the Russian Federation in the WTO.  The Financial University under the Government of the Russian Federation (Finuniversitet) is a leading publicly-funded institution of higher professional education (whose roots go back to the early 20th century).  The conference was supported by a grant from the U.S. Russian Foundation for Economic Advancement and the Rule of Law (USRF).

The conference consisted of over two dozen presentations regarding international trade law and policy and the trade law of the Russian government. 

Among the main lecturers on the first day of the conference were: Jan Bohanes, senior counsel of the Advisory Centre on WTO Law (Geneva), who lectured on constructed normal value in antidumping; Professor Steve Charnovitz of George Washington University Law School (Washington, D.C.) who lectured on the WTO-plus provisions in the Russian WTO accession package; Professor Anatoly Kapustin, Head of the Legal Comparative Research Centre who lectured on Russia and WTO Law; Professor Vasilka Sancin of the University of Ljubljana who lectured on models for an appellate mechanism in investor-state dispute settlement; Anait Smbatyan, Senior Expert at the WTO Expertise Center (Moscow) who lectured on WTO implementation; Eric M. Solovy, partner at Sidley Austin LLP (Washington, DC) who lectured on the obligations of and caselaw under the WTO Agreement on Trade-Related Intellectual Property Rights (TRIPS) and the WTO Agreement Subsidies and Countervailing Measures (SCM).  Excellent additional presentations were made by Mark G. Pomar, President of USRF and by Professor and Deputy Rector Dmitry Sorokin of Finuniversitet.

On the second day of the conference, two parallel workshops were held featuring scientific presentations by leading academics and practitioners from Moscow and other Russian cities.  Several presentations addressed the challenges and opportunities of teaching international economic law to Russian students.  In addition, Professor Alexey N. Ruzhin of the Russian Foreign Trade Academy gave a lecture on the enforcement of international trade and customs law in the Russian economy.

Organizing a major global conference on WTO law is a difficult task and Financial University Associate Professor Igor Shulyatyev is to be commended for planning and carrying out a landmark conference on key policy and technical challenges facing the Russian government in its WTO membership.  In the future, the Financial University should consider building on its success and holding a second annual conference in 2016. 

Report on the Second Oral Hearing in the WTO Airbus Dispute

Here's more reporting on the WTO Appellate Body oral hearings in the Airbus dispute, by Malorie Schaus (malorie.schaus [at] graduateinstitute.ch) and Tobiasz Kaczor (tobiasz.kaczor [at] gmail.com) of the Graduate Institute in Geneva.  This is their report of the participants' and third participants' oral statements and the second oral hearing: http://www.worldtradelaw.net/abhearings/WTO-Airbus-Case-Second-Hearing.pdf  Thanks to both of them for all their hard work!

Report on the Third Participants' Oral Statements in the WTO Airbus Dispute

As mentioned the other day, Malorie Schaus (malorie.schaus [at] graduateinstitute.ch) and Tobiasz Kaczor (tobiasz.kaczor [at] gmail.com) of the Graduate Institute in Geneva attended the public viewing in the WTO Airbus hearing.  Their summary of the third participants' oral statements is here: http://www.worldtradelaw.net/abhearings/WTO-Airbus-Case-ThirdParties-Statements.pdf

Here are a few excerpts related to export contingency:

Australia points out that the submissions to the Appellate Body in this dispute illustrate considerable divergence between the participants and third participants on what facts will demonstrate in fact export contingency. In this respect, Australia submits that the WTO Members need to know which subsidies are prohibited and which are not.

Therefore, Australia considers that these proceedings provide the opportunity for the Appellate Bodyto give a necessary clarification of Article 3.1 (a) and footnote 4 of the SCM Agreement.

...

According to Canada, for a subsidy to be contingent on export performance, the level of export sales, as opposed to the level of sales, must have played a determinative role in the government’s decision to grant the subsidy, irrespective of whether the financial contribution is inthe form of a grant or loan.

...

China is of the opinion that a legal standard of in fact contingency should be interpreted consistently with the object and purpose of the WTO. According to China, small and global industries should not be adversely discriminated. 

Report on the EU and U.S. Oral Statements in the WTO Airbus Dispute

For those who couldn't make it to Geneva and view the Appellate Body oral hearing in the WTO Airbus dispute, you are in luck.  Malorie Schaus (malorie.schaus [at] graduateinstitute.ch) and Tobiasz Kaczor (tobiasz.kaczor [at] gmail.com) of the Graduate Institute in Geneva attended the public viewing and have provided a very detailed summary of the participants' oral statements.  Their report is here: http://www.worldtradelaw.net/abhearings/WTO-Airbus-Case-Parties-Statements.pdf

They also did a summary of the third participants' statements, which they will send along shortly.

The Aircraft Dispute: The Boeing Decision

The leaking begins.  From Reuters:

An interim report released to the parties on Wednesday backed European complaints over some $17 billion of research contracts from NASA and the Pentagon and approximately $4 billion of tax breaks from Washington state, the source said.

The WTO found the aid "actionable" and called for it to be withdrawn but stopped short of labeling the state incentives "prohibited," which would require faster remedies, the source said. It also apparently dismissed complaints over property tax and other measures in Kansas.

ADDED:  Some more details (from the U.S. side):

The World Trade Organization has found Boeing (BA.N) benefited from federal and other subsidies but to a much lower extent than its European adversaries suggest, two U.S. sources familiar with the case said.

Speaking on condition of anonymity after a Geneva trade panel issued a confidential interim report on a European Union counter-suit over aircraft subsidies, they said the WTO had found subsidies worth about $5 billion including $2 billion which have already been subject to an earlier settlement.

The $3 billion or so in new subsidies were mainly linked to historical payments provided to the U.S. planemaker by NASA, the sources said. The EU had argued NASA had helped Boeing by providing research contracts with too little in return.

Sources on both sides of the dispute agreed the EU had failed to make a charge stick that Boeing had received "prohibited" subsidies through incentives in Washington state.

Subsidies provided by the home state to most Boeing commercial production only rose to the level of "actionable" support, which do not require immediate remedies.

Sources disagreed over how much of the aid from Washington state fell into this category, with European sources saying the EU had won convincingly and a U.S. source saying the EU victory there was "infinitesimal".

"It is a repudiation of Europe's view that Boeing enjoyed subsidies anywhere comparable to what Airbus enjoyed in launch aid," a source close to the U.S. side of the case said.

NOW over to the EU side:

But a source close to the European side of the case, also speaking anonymously, sharply differed on how the ruling should be interpreted.

That person said the WTO report didn't quantify the total of illegal subsidies to Boeing, so $5 billion represents only part of the full amount ruled illegal.

And he said the damages to be paid over any given illegal subsidy are a much larger amount than the subsidy itself.

"Boeing is on the hook not for $5 billion, but for $25 billion in adverse effects," he said.

And the U.S. response:

The person close to the U.S. side of the case agreed that damages will generally far exceed the subsidy itself. But he insisted that the $5 billion in Boeing subsidies cited in the ruling is a figure directly comparable to the roughly $20 billion in loans to Airbus ruled illegal in the June WTO report.

"The $20 billion is the principal amount of subsidy that Airbus received and the $3 billion, leaving out the older FSC subsidy, is the amount found by this panel in its interim report for Boeing," he said. "That's an apples-to-apples comparison."

EC - Aircraft: The Appeal

... is coming tomorrow.  Reuters has the most detail I've seen so far.  The EU is appealing all of the obvious issues:  export contingency, causation of serious prejudice, and many of the existence of a subsidy / specificity findings.  Two other interesting issues to watch are the following:

- The EU will appeal against some other "cross-cutting" findings, for example the impact of changes in ownership and the extraction of cash by shareholders on subsidies.

- It will also argue that subsidies made before 1995 cannot be part of a WTO dispute since the WTO agreement on subsidies only came into effect then.

I hope to have something to say on the first one at some point in the near future.

We may learn a bit more when the notice of appeal becomes public, but we probably won't get the key details until the EU posts its appellant's submission online (hopefully that will happen fairly quickly after it is filed, although I can imagine that if it has a lot of confidential info in it, it might take a little while).

ADDED:  The EU has posted the notice of appeal here: http://trade.ec.europa.eu/doclib/docs/2010/july/tradoc_146379.pdf

In its press release about the notice of appeal, the EU notes:  "While the timeline for the appeal process (through the WTO Appellate Body) is shorter than that of panels, i.e. normally 90 days, it is not unusual that proceedings for more complex disputes such as this one require more time."   So when can we expect to see the AB report?  Will, this is just speculation, but I might go with 140 days.  This is the highest figure for amount of time taken by the Appellate Body, but it's also the most frequently used extension time, and also the most recently used extension time (in the Hormones Suspension cases).  And given the number of issues appealed by the EU, and their complexity, and the coming U.S. cross-appeal, going for the longest time period seems like a good bet.  Just to save you the trouble, 140 days from today takes us to Wednesday, December 8, 2010.  (But just to emphasize again, that's pure speculation -- the AB will tell us the date in due course!)

The Aircraft Report: The EU Appeal

The FT reports:

The European Union will next week launch an appeal against a World Trade Organisation ruling that found EU members were illegally subsidising Airbus.

...

People familiar with the dispute said the EU appeal will focus on alleged export subsidies for the A380, Airbus’s largest jumbo launched in 2007.

It will also challenge the WTO’s findings on how the alleged aid to Airbus impacted its US competitor. A third line of appeal will question whether state funding for infrastructure that Airbus used, such as specially-built runways used for testing, should be counted as direct subsidy, as the trade body found.

The A380 part relates to the findings that the German, Spanish and UK A380 contracts were prohibited export subsidies (Article 3.1(a)); and the impact on the U.S. competitor part is about the "adverse effects"/"serious prejudice" caused by the subsidies, in particular "displacement" of U.S. sales in the EC and third country markets, and "lost sales" more generally (Articles 6.3(a),(b), and (c)).

I'm not sure exactly what is meant with regard to infrastructure subsidies, but I would guess it has to do with either the "general infrastructure" standard in Article 1.1(a)(1)(iii), related to "financial contribution," or specificity under Article 2 (or both).

And for those who are wondering, our DSC for this case should be ready soon.

Is the Aircraft Dispute All About the Threat from China?

From the LA Times:

The issues raised by both [WTO Aircraft] cases are important, and together they should help clarify what governments can and cannot do to support the aviation industry. Tougher limits on subsidies would assist both Boeing and Airbus — they can raise capital relatively cheaply to develop new products without taxpayers' help, while their competitors in developing nations are more likely to depend on governmental subsidies. That's no guarantee that China and other developing countries will heed the WTO, but it's a start.

Do Boeing and Airbus have a joint interest in establishing tough subsidies rules that prevent new competitors from entering the market?  Has that played any role in their thinking about the WTO dispute?

The Aircraft Report: No Balancing of Producer Harm with Benefits to Consumers

I've talked before about whether the harms to domestic producers caused by foreign subsidies might be outweighed by benefits to domestic consumers.  As I said there, even if they are, the distortions to production may mean the subsidies are nevertheless bad for the domestic and global economy.  But putting the distortion part aside, should consumer gains be balanced against producer losses in the context of SCM Agreement claims?  This is from the EC - Aircraft panel report:

7.1990 The European Communities' argument in this respect seems to suggest that the subsidies granted to Airbus are somehow beneficial in that they enable Airbus to compete with Boeing, which competition is good for the consumers of LCA, airlines and leasing companies, and the travelling public, and that this militates against a finding that those subsidies cause adverse effects to the United States' interests. Indeed, the European Communities asserts that Boeing welcomes the competition with Airbus, which it asserts has "generated numerous new and innovative LCA products" and fosters lower prices for LCA purchasers and increased demand, which ultimately is the basis of the financial health of both Boeing and Airbus. The European Communities maintains that airlines and other purchasers of new LCA insist that such competition is vital for their economic success and for their financial health and survival.5763 It may well be true that Boeing welcomes competition, and that competition between Boeing and Airbus benefits purchasers of LCA. But that does not mean that the United States is not entitled to relief under the SCM Agreement if that competition is fuelled by subsidies used by another Member that cause adverse effects to the United States' interests.

7.1991 Moreover, we see no basis in the SCM Agreement for the notion that an increase in "consumer welfare" constitutes a defence to a claim of adverse effects caused by subsidies. Nothing in the text of the Agreement, or in its object and purpose, supports the proposition that the panel can or should take into account possible "positive" effects on competition of subsidies in evaluating claims of serious prejudice. It may often be the case that subsidies in fact contribute positively to consumer welfare – for instance, in US – Upland Cotton, the panel found price suppression caused by subsidies, and concluded that the United States' use of subsidies caused adverse effects to Brazil's interests. However, that price suppression presumably also resulted in prices for textiles and clothing that were lower than they otherwise would have been, which is a "positive", while it also reduced revenues to cotton farmers, which is a negative. There is no mention of this in either the panel's or the Appellate Body's decision, and absolutely no basis to think that panels should somehow engage in a consideration that might "balance" these competing effects.

(emphasis added)  I have little doubt the panel is correct as a matter of legal interpretation.  But what should the policy be here?  Should the SCM Agreement take into account consumer interests in some way?  What if the producer harm barely meets the relevant SCM Agreement standards, and is counter-balanced by a substantial consumer benefit?  Should a subsidy be permitted in those circumstances?

WTO Boeing Panel Report Delayed

From AFP:

The World Trade Organization has decided to delay until September at the latest the release of its ruling on European complaints over US subsidies for aerospace giant Boeing, the EU said Thursday.

"The European Commission is extremely disappointed to learn of this additional delay into the issuing of the interim panel report," the European Union's executive arm said in a statement.

The commission said it was informed on Wednesday that the report's release would be postponed "until mid-September at the latest."

The commission said it was "very concerned" that delays in the release of the report "decrease the chance for a negotiated settlement, which is -- as publicly stated by both sides -- the desired outcome to this dispute."

I can see why the Commission is concerned, but personally, I don't mind waiting a while, so that I have time to digest the Airbus report!

The Aircraft Report: Debating the Role of International Law

From the Interim Review section of the Aircraft report:

6.20 According to the United States, the last sentence of paragraph 7.46 of the Interim Report may be read to suggest that the Panel is applying Article 28 of the Vienna Convention on the Law of Treaties (VCLT) as a rule of international law to adjudicate the rights and obligations of Members under the covered agreements. The United States argues that panels and the Appellate Body cannot apply rules of international law other than the provisions of the WTO Agreement. The United States submits that, pursuant to Article 3.2 of the DSU, panels do not clarify rules of international law that are not found in the covered agreements, although such rules may be relevant to clarifying the provisions of the covered agreements under the customary rules of interpretation of public international law, specifically as reflected in Article 31.3(c) of the VCLT.1474 The United States suggests that the Panel replace the last sentence in paragraph 7.46 of the Interim Report with a proposed text it considers to be a more appropriate formulation of the relationship between Article 5 of the SCM Agreement and Article 28 of the VCLT.1475

6.21 The European Communities objects to the United States' request to modify the last sentence of paragraph 7.46 of the Interim Report.1476 First, the European Communities considers that the United States' concern is fully addressed in footnote 1536 at the end of paragraph 7.46 of the Interim Report, which states that the Appellate Body has said in previous disputes that the principle codified in Article 28 of the VCLT is relevant to the interpretation of the covered agreements. Second, the European Communities argues that the Appellate Body has qualified Article 28 of the VCLT as a "general principle of international law", with the result that the United States is mistaken in arguing that Article 28 can only be taken into account in the context of Article 31.3(c) of the VCLT.1477

6.22 The principle of non-retroactivity embodied in Article 28 of the VCLT has been recognized by the Appellate Body to be a "general principle of international law" relevant to the interpretation of obligations contained in the WTO Agreements in many disputes. The United States' comment appears to have given rise to a disagreement between the parties as to the basis on which Article 28 of the VCLT may be applied by the Panel. The United States maintains that Article 28 can only be given effect as a rule of interpretation through Article 31.3(c) of the VCLT, while the European Communities appears to consider this approach too narrow and suggests that Article 28 of the VCLT may be given effect as a general principle of international law, independently of Article 31.3(c) of the VCLT. In our view, it is unnecessary to engage in this debate, as neither party disputes that the interpretation of Article 5 of the SCM Agreement should be consistent with the principle of nonretroactivity embodied in Article 28 of the VCLT. We therefore have made revisions to paragraph 7.46 and footnote 1536 (paragraph numbering unchanged, now footnote 1829) to clarify that we interpret Article 5 of the SCM Agreement consistently with the principle of non-retroactivity embodied in Article 28 of the VCLT, in accordance with the approach taken by the Appellate Body in prior disputes.

More on the same issue in paras. 6.23-25.   Also, there's discussion of "applicable law" and the role of international law at paras. 7.70-105.

Clearly, international law will play a role in WTO dispute settlement.  But as Joel, Joost and others can attest to, there is disagreement on the reasons for that and the extent of any such role.

The Aircraft Report: Debating the Role of Precedent

This is from the Interim Review section of the Aircraft report:

6.26 The United States requests that the first sentence of paragraph 7.248 of the Interim Report be modified to remove any suggestion that reports of the Appellate Body are binding except with respect to resolving the particular dispute between the parties to that dispute.1481 The United States also notes that, consistent with Article 17 of the DSU, it would be more accurate to refer to "reports" of the Appellate Body, rather than "decisions". The United States identifies a number of references throughout the Interim Report to "decisions" of the Appellate Body which it requests be modified to "reports".1482

6.27 The European Communities does not agree with the United States' request to modify the first sentence of paragraph 7.248 of the Interim Report.1483 According to the European Communities, the United States' request omits reports subsequent to Japan – Alcoholic Beverages II in which the Appellate Body clarified its reasoning about the relevance of adopted Appellate Body reports in subsequent proceedings. The European Communities considers that the current wording of paragraph 7.248 of the Interim Report properly reflects the Appellate Body's position on this issue.1484

6.28 The question of the relevance of Appellate Body reports is highly contentious among Members, and it is not necessary for us to address it in order to resolve the dispute before us. The changes requested by the United States do not affect or undermine our reasoning on the substantive issues before us. We therefore have amended paragraph 7.248 (numbering unchanged), and made conforming changes, both where identified by the United States, and where identified by us, throughout the final report, to refer to Appellate Body "report" rather than "decision".

I wish I could see the original para. 7.248 that had the U.S. so concerned about the "binding" nature of Appellate Body reports, but alas, that is confidential.

Issues for Appeal in Aircraft

Here are the obvious ones I've seen so far in reading through the report.

For the EU:  The finding that certain launch aid/member State financing constitutes prohibited export subsidies (paras. 7.582-716).  It would be nice for the EU to not have these subsidies classified as "prohibited" (although implementation may not be all that difficult). 

For the U.S.:  Launch aid/member State financing is not a program (paras. 7.498-581).  The U.S. would be in a much better position to stop future (alleged) subsidies if they could get a finding that the program itself constitutes a prohibited export subsidy.

The appeal problem with both of these issues is that, in my view, they were very close calls (note that this is based on one read-through of each).  There was not a clear cut finding to be made one way or the other, nor were there any glaring errors in the panel's findings.  Also, both findings were fact-intensive, which can make appeals difficult.  The parties might have to go into DSU Article 11, which is not always a place you want to go.

Also of interest was this statement by the panel:  "7.675 In our view, a government's motivation for granting a particular subsidy, to the extent it can be established from the evidence and arguments presented by the parties in dispute, will be highly relevant when evaluating whether a subsidy has been granted contingent in fact upon export performance within the meaning of Article 3.1(a) of the SCM Agreement. ..."  As I've mentioned before, I like intent, but I don't think most people like it is as much as I do, so I'll be curious what the Appellate Body says about this.

A Few Points About the Aircraft Decision

Nothing that important, but a couple things of note.

First, Boeing has provided a nice breakdown of the findings for each measure.  We often do this in our DSC, but they've saved us the trouble.  (I assume they got it right, but have not double-checked).

Second, I'm curious as to what was going on in fn. 7 of the report:

On 28 February 2006, the Panel had received an unsolicited communication from an individual. The communication addressed a question that is not an aspect of the matter within the Panel's terms of reference. The Panel therefore found it inappropriate to consider that communication and has rejected it.

Third, apparently things got a little testy between the parties:

6.4 The European Communities notes that the term "EC" is used in the Interim Report when referring to the European Communities, while the term "United States", which the European Communities describes as a "full reference", is used when referring to the United States of America. In light of this, the European Communities requests the Panel to replace the term "EC" by the term "European Communities" in all instances where the European Communities is mentioned or used as a noun, referring in support to a footnote in its answers to the Panel's questions filed 30 April 2007, which states "{t}he European Communities would also ask the Panel to avoid adopting the irritating US habit of systematically abbreviating the European Communities to "EC"."1464

6.5 The United States did not comment on this aspect of the European Communities' request.

Finally, if you're looking for some substance, the discussion of "pass-through" and related issues in paras. 7.178-289 is pretty interesting.  I'm not sure yet what I think of it all.

The WTO Aircraft Decision

It's out, and it's just about as long as they said it would be.  Here's the "abbreviated" version -- just the background and findings, with the parties' arguments and annexes taken out -- on our web site.  This version is "only" about 870 pages of text.  Here's the full version, if you don't want to miss any details:  http://www.worldtradelaw.net/reports/wtopanelsfull/ec-aircraft(panel)(full).pdf

Here's USTR's summary of the key findings:

Launch Aid

The WTO panel found that European governments have provided Airbus more than 15 billion euros (face value) in launch aid – subsidizing every model of aircraft ever produced by Airbus in the last 40 years. This preferential form of financing permitted Airbus to introduce new models by offsetting the enormous costs and extremely high risks that characterize the development of large civil aircraft.

Launch aid provided by Germany, Spain and the UK for the Airbus A380 was prohibited per se under WTO rules because it was conditioned on the export of aircraft.

Infrastructure-Related Subsidies

The WTO panel found that France, Germany and Spain provided more than one billion euros in infrastructure and infrastructure-related grants between 1989 and 2001, including the creation of land in Hamburg to allow Airbus to expand production facilities, extending an airport runway in Bremen to allow Airbus to transport wings to other facilities for aircraft assembly, and transforming agricultural land in Toulouse into industrial facilities for the assembly of the A380.

Share Transfers and Equity Infusions

The WTO panel found that France and Germany provided billions of dollars of share transfers and equity infusions to Airbus between 1987 and 1998.

Research & Development Funding

The WTO panel found that the EU, France, Germany, Spain and the UK provided over one billion euros in funding between 1986 and 2005for research and development directed specifically to the development of Airbus aircraft.

Adverse Effects for the U.S. Aircraft Industry

The Panel found that the above subsidies caused adverse effects to the interests of the United States, in the form of lost sales – involving purchases of Airbus aircraft by easyJet, Air Berlin, Czech Airlines, Air Asia, Iberia, South African Airways, Thai Airways International, Singapore Airlines, Emirates Airlines, and Qantas – and lost market share, with Airbus gaining market share in the EU and many third country markets at the expense of Boeing.

Here's Boeing's press release.  They have a broad interpretation of the impact of the findings:

"Under today's decision, Airbus must repay the $4 billion in illegal launch aid it received for the A380 or restructure the A380's financing to proven commercial terms. Likewise, Airbus must abandon its plans to finance the A350 through the use of illegal subsidies," ...

The point about future subsidies to the A350 is very important.  One issue I'll be looking for as I read through is the following:  Is there anything in this report that affects future aid to new Airbus models?  From the press reports I read after the confidential version was issued to the parties, it seemed that the panel did not find that aid to Airbus was part of a single, general subsidies program.  As a result, the U.S. would not be able to challenge future aid to Airbus for new aircraft types as a failure to comply with this panel's findings of violation.  But I want to see for myself exactly what the panel said on this point.

As for whether the A380 loans have to be "repaid," well, there is the Australia - Leather, Article 21.5 decision in support, but that view was pretty controversial.  It will be interesting to see what position the U.S. government (as opposed to Boeing) takes on this point.

On the other side, France was was happy with some parts of the ruling:

"France is already delighted by the conclusions of the WTO report, which confirm, once again, that the repayable aid is not in itself contrary to WTO rules," ...

Nevertheless, Airbus may push the EU to appeal:

"Airbus, the EU and the member states are closely analyzing the report in advance of a possible review by the WTO Appellate Body," Rainer Ohler, head of public affairs and communications at EADS (EAD.PA) subsidiary Airbus, said in a statement.

Launch Aid and Compliance with the WTO Airbus Ruling

Reuters has some new details on the WTO Airbus ruling:

Picking apart the contrasting claims, two sources familiar with the case told Reuters the draft conclusions of a five-year WTO probe overwhelmingly backed U.S. charges that the dozen or so loans were "actionable" subsidies that harmed Boeing.

Washington won a partial victory on a second key claim: that most of the same loans further violated WTO rules by amounting to prohibited export subsidies, the sources said. The extent of the U.S. victory on this point remained unclear.

...

At least one of four loans given by European governments to help fund the A380 superjumbo was cleared of being a banned export subsidy, but the rest were found illegal, sources said.

Washington however lost a third claim: that the overall use of European loans was an invalid program of support in its own right, several sources familiar with the matter said.

The United States had not only attacked the individual loans but claimed they were part of a concerted and open-ended system in a bid to implicate future loans for Airbus's future A350, which fell outside the jurisdiction of the WTO complaint.

This last bit is the point I was getting at the other day, when I said:

For me, here's the big question about the ruling:  Can the findings on launch aid be used to bring launch aid not specifically challenged in this dispute within a DSU Article 21.5 compliance panel's jurisdiction as a "measure taken to comply"?  That is, is there a basis for the U.S. to argue that the grant of future launch aid means that the EU is not complying with the ruling?

Let me elaborate on this a bit.  One reason for the U.S. to make a claim against launch aid as a "program" or "measure" is so that future launch aid payments, perhaps even for aircraft (like the A350) not covered by the specific payments challenged in the complaint, would be within the jurisdiction of a DSU Article 21.5 "compliance" proceeding.

(For those who are new to these issues -- and my sense is that with the new school year, many students have just started reading this blog -- the significance of challenging future launch aid payments under Article 21.5 is the following.  If the U.S. has to challenge such payments through a new complaint, it would have to start this complaint from the beginning of the DSU process.  By contrast, if it can characterize future launch aid payments as being related to the original dispute, it can bring an Article 21.5 challenge against these payments, alleging that they are not in compliance with the original ruling.  If it succeeds on the Article 21.5 complaint, it can then request authorization to impose trade sanctions right away, which it could not do with a regular complaint).

So what I'm curious about is exactly how the WTO panel characterized its findings on launch aid, and whether, based on this characterization, there is room for the U.S. to argue that future launch aid falls within the scope of an Article 21.5 proceeding.  The Reuters article perhaps implies that the answer is no, but the panel's actual reasoning may make the issue more complicated.

One final point:  I think the issue may be more complex than simply whether the new launch aid is a "measure taken to comply," as I said in the quote above.  But it's a little too complex to explain quickly here.

The WTO Airbus Ruling: Some Details

From the WSJ:

The Journal reported that the WTO in its interim ruling classified every launch aid package given for the A380 passenger jet as an illegal subsidy.

ADDED: Let the debate over what the ruling actually says commence.  From Reuters:

Comments that the World Trade Organization on Friday backed a U.S. complaint against European Union aid to plane maker Airbus are wrong and misleading, EU sources with knowledge of the WTO ruling said.

"The ruling is not a black-and-white case. It simply is not a great victory for the United States," one source told Reuters on condition of anonymity.

"The claim that the WTO ruled that subsidies given (by the EU) to Airbus for their A380 plane were illegal is wrong and misleading."

More from Reuters here:

The World Trade Organisation has held back from ruling that all aid for the Airbus A380 was illegal, a European source said on Friday, contradicting a report that the trade body had issued a sweeping rejection of government loans Airbus received to develop the superjumbo. 

The source indirectly indicated that some of the funding -- which the European Union calls 'reimbursable launch investment' and the United States regards as illegal 'launch aid' -- had fallen foul of a confidential ruling by the global trade body. 

However the source said the draft WTO report had dismissed 70 percent of U.S. claims over aircraft subsidies, which Washington believes damaged Boeing to the tune of $205 billion. 

'Contrary to media reports, the A380 reimbursable launch investment has not been judged a prohibited subsidiy in its totality,' the European source, who is familiar with the defence arguments used in the case, told Reuters. 

So launch aid is not a prohibited subsidy "in its totality."  Does that mean that only specific payments were found to be prohibited subsidies?

BACK TO THE U.S. SIDE:

From the Olympian:

"Not only did they rule the subsidies were illegal, they ruled they have caused material harm to Boeing," the source said.

That last bit sounds like an adverse effects finding under the actionable subsidies provisions.

THE BIG QUESTION:

For me, here's the big question about the ruling:  Can the findings on launch aid be used to bring launch aid not specifically challenged in this dispute within a DSU Article 21.5 compliance panel's jurisdiction as a "measure taken to comply"?  That is, is there a basis for the U.S. to argue that the grant of future launch aid means that the EU is not complying with the ruling?

MORE NEWS REPORTS:

From the FT:

While the WTO found that some of the €3bn in repayable launch aid – state funding to develop new aircraft – for the A380, the world’s biggest passenger jet, were tantamount to government subsidies, the panel also noted that launch aid can be a viable option for financing aircraft. This will be seen as a considerable victory for the European position.

One European source in Brussels said: “The draft report has dismissed 70 per cent of US claims about alleged EU subsidies to Airbus. It has also confirmed that repayable launch aid is a permissible way to partner with governments.”

I wonder what it means to say that launch aid is a "viable option" or is a "permissible way to partner with governments."  Does this just mean that the terms cannot be too favorable?

The WTO Airbus Ruling: No Leaks Yet

So far, the details of the Airbus ruling have not been leaked, so nothing to comment on in that regard.  However, I did have a quibble with this statement by the Economist:

Theoretically the WTO ruling, if confirmed and not over-turned on appeal, could cause a trade war between the European Union and America.

I suppose they mean that the trade sanctions that could eventually be authorized in response to a finding of violation would constitute a "trade war."  Another way to look at it, though, is that the current subsidies both companies receive are the "trade war," and the WTO dispute process will, hopefully, resolve things.

The WTO Airbus Ruling: Some Non-Substantive Details

The WSJ says it's 1,000 pages:

Trade-law specialists say the 1,000-page document's wording will be ambiguous enough to allow the EU to appeal unfavorable findings

Here's another non-substantive question:  Will the document be leaked?  No doubt it will be leaked to someone, but I guess what I have in mind is whether it will be posted on somebody's web site (not ours!), as happened with the GMOs decision.

Airbus vs. Boeing vs. China

The Economist has an article about how the Chinese are planning to develop aircraft to compete with Airbus and Boeing.  The article noties:

Although Boeing huffs and puffs about ensuring that China sticks to WTO rules banning market-distorting subsidies, both it and Airbus are studiously polite about the prospect of a new rival. Boeing says that competition has always been good for the business, and an Airbus spokesman describes it as “a natural ambition” for a country of China's size to make big jets.

My first point is a bit nit-picky, but I'm going to make it anyway.  I know that you need to use short-hand when writing these kinds of articles, but isn't saying that WTO rules ban "market-distorting" subsidies a bit of an exaggeration?  Obviously they can't flesh out the entire SCM Agreement here, but perhaps "trade-distorting" would be more accurate.  If the rules banned "market-distorting" subsidies, wouldn't that prohibit just about all subsidies?

Aside from that, I found the part about Airbus and Boeing being "polite" in the face of potential Chinese competition to be interesting.  Are they really going to let this happen without a trade fight?  I would not have thought so, especially given their experience with trade litigation.  On the other hand, one reason the answer could be yes is provided in the final paragraph of the piece:

... manufacturing big commercial aircraft has ceased to be a national enterprise. Boeing and Airbus increasingly rely on global supply chains and risk-sharing partners, some of which are involved from the design stage to produce not just components, but entire sections of planes.

It may be that in the future, just about every country will have a stake in producing all of the big aircraft, meaning there will be nobody to bring a complaint.

Obama on the Tanker Deal

From the AP:

An Iraq war veteran at the town hall asked [Senator Obama's] opinion of a recent decision by the Pentagon to award a a $35 billion Air Force tanker contract to a consortium led by Airbus, located in Europe, over a bid led by U.S.-based Boeing.

Obama said he had concerns about the deal but an investigation was warranted to find out more.

"I don't mind the Pentagon procuring from other countries but when you've got such an enormous contract for such a vital piece of our U.S. military arsenal, it strikes me that we should have identified a U.S. company that could do it," he said, though he added that he might conclude the decision was justified if it turns out Airbus' bid was 10-15 percent better than Boeing's.

So as a general matter, he thinks having the Pentagon buy from foreign sources is OK.  That's a fairly pro-trade sentiment.  In this specific instance, though, he thinks the tankers are crucial for national security, so maybe it's not OK, although perhaps it would be if the foreign product was significantly better.  That's less pro-trade, but still not completely anti-trade.

Obama/Clinton and Boeing vs. McCain and Airbus

As if the Boeing vs. Airbus controversy on the Air Force tanker deal wasn't political enough already, with Obama and Clinton criticizing the decision to award the contract to a group that includes Airbus, now there's this:

Angry Boeing supporters are vowing revenge against Republican presidential candidate John McCain over Chicago-based Boeing's loss of a $35 billion Air Force tanker contract to the parent company of European plane maker Airbus.

...

... Boeing supporters in Congress are directing their wrath at McCain, the Arizona senator and nominee in waiting, for scuttling an earlier deal that would have let Boeing build the next generation of Air Force refueling tankers.

Whoever the Democratic nominee is, it seems likely that this will be an issue in the Presidential campaign, with the Democratic candidate criticizing McCain for "outsourcing" U.S. military aircraft.  Something along these lines, I would guess:

House Speaker Nancy Pelosi, D-Calif., echoing the thoughts of many congressional Democrats, sees McCain's role in a less positive light. She said the earlier tanker deal was "on course for Boeing" before McCain started railing against it.

"I mean, the thought was that it would be a domestic supplier for it," Pelosi told reporters. "Senator McCain intervened, and now we have a situation where the contract may be — this work may be outsourced."

When you combine this with McCain's uncompromising support for NAFTA, trade and globalization could be as big a deal in the general election as it has been in the Democratic primaries.

ADDED:  And now there's this:

The Associated Press reported that some of [McCain's] current advisers lobbied last year for the European Aeronautic Defence and Space Co., the parent company of plane maker Airbus. EADS and its U.S. partner Northrop Grumman Corp. beat Boeing Co. for the lucrative aerial refueling contract.

...

Two of the lobbyists working on the EADS account gave up their lobbying work when they joined McCain's campaign last year. A third, former Texas Rep. Tom Loeffler, lobbies for EADS and serves as McCain's national finance chairman.

Something New to Demagogue About

All of this NAFTA bashing is getting tiring.  Isn't there something else to demagogue about?  Hey, how about this:

As has been widely reported, the Air Force stunned almost everyone yesterday by deciding to award its huge, $35 billion contract for new airborne refueling tankers to a partnership formed by Northrop Grumman, the Los Angeles-based company, and EADS Inc., the European maker of Airbus airliners.

Boeing, headquartered in Chicago but with a large workforce in Washington State, was the big loser. Boeing had said that if it got the contract to build the new tanker based on its 767 airliner, it would provide enough work to keep 40,000 U.S. workers busy.

The article notes helpfully:

Because of the jobs issue, this Air Force decision seems tailor-made for Sen. Barack Obama and Sen. Hillary Clinton who in their increasingly populist appeals have made the loss of American jobs a major presidential campaign issue, especially as they compete for labor votes during the primaries.

With Obama being from Illinois, and Boeing having its headquarters in Chicago, we could be hearing about this soon.

UPDATE:

Well that didn't take long, although in fairness it was a somewhat measured response:

Sen. Barack Obama expressed his disappointment Sunday that Northrop Grumann and the parent company of Europe’s Airbus beat out Chicago-based Boeing Co. for a contract worth up to $40 billion for the next generation of U.S. Air Force refueling tankers.

Obama said it was hard for him to believe “that having an American company that has been a traditional source of aeronautic excellence would not have done this job.” He preempted his comments by saying that he had not examined the deal carefully.

MORE: From Hillary:

As Air Force officials met with angry members of Congress, presidential candidate Hillary Clinton said in a statement, "I am deeply concerned about the Bush administration's decision to outsource the production of refueling tankers."

New York Democratic Sen. Clinton said it was "troubling" that the contract would go to "a team that includes a European firm that our government is simultaneously suing at the (World Trade Organization) for receiving illegal subsidies."

Airbus vs. Boeing: In the Courts and In the Market

The Airbus-Boeing WTO dispute is plodding along.  It's fine with me if the panels take their time.  I'm not sure I'll ever be quite ready to digest the monstrous panel reports that are likely to come out of this dispute.

In the meantime, Airbus and Boeing continue to compete in the marketplace, with the WTO dispute playing an important background role.  From The Economist:

... On February 13th the United States Air Force (USAF) will decide which of two contenders—Boeing or a consortium of Northrop Grumman and EADS—will supply an initial tranche of 179 aerial-refuelling tankers as it starts to replace its 530 elderly KC-135 aircraft.

...

Given the air force's earlier preference for the [Boeing] 767, it is tempting to dismiss the chances of the Northrop-EADS partnership, which is offering a tanker version of the Airbus A330. But the political pressure for a genuine competition has made it harder (though not impossible) for Boeing to play the patriotism card. As there are only two makers of commercial jets that can meet the USAF's requirements, there would have been no contest had EADS, the Franco-German aerospace company that owns Airbus, not been convinced that it was in with a chance. But with the contest reaching its final stages, the attempts by both sides to prove that theirs is the better plane for the job have become increasingly acrimonious.

...

Amid the fog of claim and counter-claim, there is little doubt that the KC-30 is the more capable aircraft. But whatever the air force decides, Congress will have the last word—and there its prospects look fairly bleak. More than 60% of the value of the KC-30 would be sourced in America, and EADS would also build commercial freighters on the KC-30 assembly line in Mobile, Alabama. But Boeing's proposal would provide more jobs for Americans.

The fact that Democrats are now calling the shots in both houses in Congress also plays to Boeing's advantage. Patty Murray, a senator from Washington, Boeing's home state, makes it clear she will use a simmering row between Airbus and Boeing at the World Trade Organisation to knock the KC-30 out of the sky. Says the flag-waving Mrs Murray: “American taxpayers should not reward a company that has spent decades hurting American workers, and we should not turn a critical military contract over to a foreign company that is unfairly supported and subsidised by foreign powers.”

If Boeing wins the contract, it would not be too surprising if the EU adds a new item to its WTO complaint.

The DS316 Aircraft Panel Hearing

Following-up on Roger Alford's post over at Opinio Juris and Tomer's post on this blog, the WTO panel hearing on one part of the Aircraft dispute (DS316, involving alleged subsides to Airbus) took place last week.  As Roger and Tomer noted, the hearing was transparent to a limited degree, in that a tape of parts of the hearing could be viewed afterwards at WTO headquarters.  Unfortunately, the most interesting part, the questions from the panel and the parties' answers, was not included in this viewing.

In an effort to improve transparency in a small way, we have in the past enlisted people to attend the viewings of these hearings and report about them on this blog.  This time the reporter was Valéria Guimarães de Lima e Silva, who is pursuing a Masters in International Law and Economics at the World Trade Institute in Bern, Switzerland (she also holds a PhD in International Law from the University of São Paulo (USP), Brazil).  If anyone wants to follow-up with her about the viewing, you can contact her at [email protected].  Her report follows.

Dance of the Seven Veils

The second meeting of the Airbus dispute panel (DS316), scheduled to conclude today, I believe, will be aired to the "public" through "an opportunity to view a videotape, at a date to be announced" (see USTR announcement)(hat tip: Roger Alford at Opiniojuris).

To an uninformed bystander like myself, there seem to be a number of anomalies in this procedure. First, the main concern apears to be "business confidential information" (BCI"). Yet representatives of the only parties seriously involved as producers of large civil aircraft will be in the room during the hearings themselves. So if a party chooses to include BCI in its opening statement, comments or questions, most of the potential damage would already have been done. Unless they are concerned about downstream suppliers and consumers - but I doubt that BCI should be relevant in this respect. Second, if the hearing will be canned and edited before the public is exposed to it, why in this digital era of podcasts, is it truly necessary to physically attend the viewing? Perhaps Geneva is in search of shows and attractions to draw in crowds of tourists (those flying in specially to view the Airbus videotape might be interested in the July schedule of cultural events...), but I doubt this would be it. Third, why is the viewing only open to "those individuals who apply and are accepted to the WTO"? And what are the criteria for approval (the USTR statement only requires information relating to identity of applicants)? Why are they not made available in advance? For example, would journalists be acceptable? or only people who have a personal interest in the case or represent unions or corporations who do?

I don't know much about the public-private political economy in this case, but my hunch is that it is the driving force behind the procedure of this "public viewing", which seems more tailored to exclusiveness than openess. More generally, however, it sets a bad model for other more obviously socially sensitive cases.

In the dance of transparency, for every veil removed, there appears another one instead. If they will ever be removed entirely, the truth is that what will be revealed is not so exciting to non-specialists. Maybe it is better to just lay back and watch the dance.

T.

      

A "Glimpse" at the Aicraft WTO Panel Meetings

As stated in news reports, the WTO will offer a "glimpse" at the upcoming panel meeting in the aircraft case (the one brought by the U.S. against alleged subsidies to Airbus).  The actual meeting will be tomorrow.  However, the "glimpse" will occur on Thursday, via closed circuit transmission.  It will be "carefully censored as many of the allegations involve information Brussels says is confidential."

As with the Hormones Sanctions panel meetings, Anna-Emilia Autio was once again kind enough to agree to attend and report on the meeting.  I will post her notes as soon as she has a chance to digest everything.

Airbus, pre-WTO expired programmes and retroactivity?

I have noticed that the United States mentions many pre-WTO programmes (namely pre-1995) in its panel request against Airbus. Most likely, some of  these programmes were expired  when the WTO  entered into force.  I wonder if the panel will accept to consider these pre-WTO expired programmes. In Upland Cotton, the AB confirmed that expired programmes could still be considered by a panel if they are “affecting” in the present the complaining party through their “lingering effects”. However, in Upland Cotton the programmes were post-WTO in the sense that they expired after 1995. Would the Airbus panel adopt the same reasoning and accept to consider expired pre-WTO programmes on the basis on their “lingering effects” in the present? If yes, would this amount to a retroactive application of the SCM?

Airbus-Boeing: Now It's A Bidding War

It's rare that the U.S. Department of Defense gets involved in trade disputes, but I guess Airbus-Boeing is such a big dispute that it's drawing everyone in.  According to Reuters, as part of the Air Force's "multibillion-dollar competition for aerial refueling tankers," Boeing is competing with the team of Northrop Grumman and EADS, the majority owner of Airbus.  In an initial "request for information" in April, the Air Force "asked the companies to identify any subsidies they received and explain any potential impact of the WTO dispute between Boeing and Airbus on their bids."  Reuters notes that "[a]nalysts have said the Pentagon's request could force Airbus, 80 percent owned by EADS, to yield information that could be used against it in the WTO complaint."

Senators McCain and Shelby are not happy about this request, and Shelby "said he told Deputy Defense Secretary Gordon England last week that it was 'unfair' to ask bidders about the dispute before the World Trade Organization, and said the Senate should hold hearings about the unprecedented move."

The Washington Post is also reporting on this, and has some additional background.

It's hard to say at this point whether this issue will blow over or blow up, but I'll update this post with further developments as they occur.

UPDATE: As explained here and here, the Northrop Grumman team has pledged to build a tanker assembly plant in Mobile, Alabama if they win at least part of the contract, hence the involvement of Senator Shelby. Several Alabama Congressmen, including Shelby, are scheduled to meet with Gordon England today.

UPDATE II: A few more details now that Shelby and others have met with Gordon England.

UPDATE III:  According to this report, the decision on whether to ask about the WTO issues has been put off until the final request for proposal is submitted:

The Air Force said the draft request for proposal doesn't directly ask companies to detail the effects of WTO disputes, as industry was asked in a request for information earlier this year. Instead, it asks companies "whether the final RFP should be modified" to include WTO concerns.