Proposal for a COUNCIL DECISION concerning the conclusion of an Agreement between the European Economic Community and the United States of America on trade in large civil aircraft
Date: 1992-05-25
Institutions: European Commission
Subjects: GATT, United States, aeronautical industry, agreement (EU), aircraft, trade agreement

COMMISSION  OP  THE EUROPEAN  COMMUNITIES 

C0M(92) 222  final 

Brussels, 25  May  1992 

Proposal  for a 

COUNCIL  DECISION 

concerning  the conclusion of an Agreement  between 
the European  Economic Community  and 
the United  States of America 
on  trade  in  large civil  aircraft 

(presented  by  the Commission) 

EXPLANATORY  MEMORANDUM 

By  decision  of  4  February  1991,  the  Council  authorised  the 
Commission  to  open  negotiations  both  with  the  United  States  of 
America  and  with  other  Parties  to  the  6ATT  Agreement  on  Trade  in 
Civil  Aircraft  in  order  to  conclude  new  arrangements  governing 
trade  in civil  aircraft. 

2.  In accordance  with  this decision  and  with  the detailed  negotiating 
directives  adopted  by  the Council  and  in consultation  with  the  113 
Committee, the Commission  held  negotiations  with  the  United  States 
which on 31 March  1992 resulted  in the enclosed agreement. 

The  enclosed  agreement  corresponds  closely  with  all  points  in  the 
negotiating  directives.  In  particular  the  scope  of  the  agreement 
has been  limited  to  large civil  aircraft.  In this regard, since  it 
was  not  possible  to  reach  a  satisfactory  definition  in  terms  of 
seating  capacity,  explicit  reference  is made  to  aircraft  produced 
in  the  Community  by  the  Airbus  consortium.  Moreover,  the 
Commission  considers  that  a  balanced  set  of  disciplines  has  been 
introduced  covering both  indirect  and direct  support. 

In  Article  12  of  the  Agreement,  both  the  United  States  and  the 
Community  re-affirm  their  determination  to achieve  revision  of  the 
GATT  Civil  Aircraft  Agreement.  As  foreseen  in the  above-mentioned 
Council  decision,  the  Commission  now  expects  this  multilateral 
process  to  be  launched  immediately  in conjunction  with  the  United 
States Government. 

PROPOSAL  FOR A COUNCIL  DECISION 

concerning  the conclusion of  an Agreement  between 
the European Economic Community 
and  the Government  of  the United  States of  America 
on  trade  in  large civil  aircraft 

THE COUNCIL OF THE EUROPEAN  COMMUNITIES, 

Having  regard  to  the  Treaty  establishing  the  European  Economic 
Community, and  in particular Article 113 thereof, 

Having  regard  to the proposal  from  the Commission, 

Whereas  the  Agreement  negotiated  between  the  European  Economic 
Community  and  the  Government  of  the  United  States  of  America  on  trade 
in  large  civil  aircraft  in  Brussels  on  31  March  1992  should  be 
approved, 

HAS DECIDED AS FOLLOWS: 

Article 1 

The  Agreement  between  the  European  Economic  Community  and  the 
Government  of  the  United  States  of  America  on  trade  in  large  civil 
aircraft  is hereby  approved on  behalf of  the Community. 

The  text of  the Agreement  is attached  to this Decision. 

Article  2 

The  President  of  the  Council  is  hereby  authorised  to  designate  the 
person  empowered  to  sign  the  above  Agreement  in  order  to  bind  the 
Community. 

Done at Brussels 

For  the Council 

The  President 

AGREEMENT 
CONCERNING THE APPLICATION 
OF THE GATT AGREEMENT ON TRADE IN CIVIL AIRCRAFT 

Between  the  European  Economic  Community  (hereinafter 
referred  to  as  "the  EC") and  the  Government  of  the  United 
States of America  (hereinafter  referred  to  as  "the US") on 
trade in large civil aircraft, 

Recognising  the  need  to  promote  a  more  favourable 
environment  for  international  trade in large civil  aircraft 
and to reduce trade  tensions in the area, 

Recognising  that  the  disciplines  in  the  GATT  Agreement  on 
Trade  in Civil  Aircraft  should  be  strengthened  with  a view 
to progressively reducing the role of government support, 

Recalling  the  principles  and  objectives  agreed  upon  by 
representatives  of  the  US  and  of  the  EC  at  their  meeting 
held in London on 27 October 1987, 

In  pursuit  of  their  common  goal  of  preventing  trade 
distortions  resulting  from  direct  or  indirect  government 
support  for  the  development  and  production  of  large  civil 
aircraft  and  of  introducing  greater  disciplines  on  such 
support and of encouraging the adoption of such  disciplines 
multilaterally within the GATT, 

Noting  their  intention  to  act  without  prejudice  to  their 
rights  and  obligations  under  the  GATT  and  under  other 
multilateral agreements negotiated under the auspices of the 
GATT, 

THE EC AND THE US HAVE AGREED: 

Article 1 

Government-Directed Procurement, Mandatory Sub-contracts and 
Inducements 

With  respect  to  issues  concerning  Article  4  of  the  GATT 
Agreement on Trade in Civil Aircraft  ("Aircraft Agreement"), 
the  Parties  agree  to  act  in  conformity  with  the 
interpretative  note  to Article  4 of  the Aircraft  Agreement 
contained  in Annex I of this Agreement. 

Article 2 

Prior Government  Commitments 

Government  support  to  current  large  civil  aircraft 
programmes, committed  prior to the date of entry  into force 
of this Agreement,  is not subject to the provisions of this 
Agreement except as otherwise provided below.  The terms and 
conditions  on  which  such  support  is  granted  shall  not  be 
modified in such a manner as to render it more favourable to 
the recipients; however, de minimis modifications shall not 
be deemed inconsistent with this provision. 

Article 3 

Production Support 

As of entry  into force of this Agreement, Parties shall not 
grant direct government  support  other than what  has already 
been  firmly  committed  for  the  production  of  large  civil 
aircraft.  This prohibition shall apply both to existing and 
to future programmes. 

Article 4 

Development Support 

4.1  Governments  shall  provide  support  for  the  development 
of  a  new  large  civil  aircraft  programme  only  where  a 
critical  project  appraisal,  based  on  conservative 
assumptions, has established that there is a reasonable 
expectation  of  recoupment,  within  17  years  from  the 
date  of  first  disbursement  of  such  support,  of  all 
costs  as  defined  in  Article  6(2)  of  the  Aircraft 
Agreement,  including  repayment  of  government  supports 
on the terms and conditions specified below. 

4.2  As  of  entry  into  force  of  this  Agreement,  direct 
government  support  committed  by  a  party  for  the 
development of a new large civil aircraft programme or 
derivative shall not exceed: 

a)  25 per cent of that programme's total  development 
cost as estimated at the time of commitment  (or of 
actual  development  costs,  whichever  is  lower); 
royalty  payments  on  this  tranche  shall  be  set  at 
the time of commitment  of the development  support 
so as to repay this support at an interest rate no 
less than the cost of borrowing  to the government 
within  no  more  than  17  years  from  first 
disbursement, plus 

b)  8 per  cent of  that  programme's  total  development 
cost as estimated at the time of commitment  (or of 
actual  development  costs,  whichever  is  lower); 
royalty  payments  on  this  tranche  shall  be  set  at 
the time of commitment of the development  support 
so as to repay such support at an interest rate no 
less than the cost of borrowing  to the government 
plus 1 per cent within no more than  17 years from 
first disbursement. 

These  calculations  shall  be  made  on  the  basis  of  the 
forecast of aircraft deliveries  in the critical project 
appraisal. 

4.3  Royalty  payments  per  aircraft  shall  be  calculated  at 
the time of commitment of the development support to be 
repaid on the following basis: 

a)  20  per  cent  of  aggregate  payments  calculated  in 
accordance  with  Article  4.2  above  are  payable  on 
the basis of the delivery  of a number  of  aircraft 
corresponding  to  40  per  cent  of  forecast 
deliveries; 

b)  70  per  cent  of  aggregate  payments  calculated  in 
accordance  with  Article  4.2  above  are  payable  on 
the basis of the delivery  of a number  of  aircraft 
corresponding  to  85  per  cent  of  forecast 
deliveries. 

Article 5 

Indirect Government  Support 

5.1  Parties  shall  take  such  action  as  is  necessary  to 
ensure that indirect government support neither  confers 
unfair  advantage  upon  manufacturers  of  large  civil 
aircraft  benefiting  from  such  support  nor  leads  to 
distortions  in  international  trade  in  large  civil 
aircraft. 

5.2  As  of  entry  into  force  of  the  Agreement,  identifiable 
benefits to the development or production of  any of the 
products  covered  by  this Agreement, net  of  recoupment, 
derived  from  indirect  support  shall  not  exceed  in  any 
one year: 

a)  3 per cent of the annual commercial  turnover of the 
civil  aircraft  industry  in the  Party  concerned  for 
the products covered by this Agreement, or 

b)  4 per cent of the annual commercial  turnover of any 
one  firm  in  the  Party  concerned  for  the  products 
covered by this Agreement. 

5.3  Benefits from indirect support shall be deemed to arise 
when  there  is  an  identifiable  reduction  in  costs  of 
large  civil  aircraft  resulting  from  government-funded 
research  and  development  in  the  aeronautical  area 
performed after the entry  into force of this Agreement. 

Where  it  can  be  demonstrated  that  the  results  of 
research  and  development  have  been made  available  on a 
non-discriminatory  basis  to  large  civil  aircraft 
manufacturers  of  the  Parties,  benefits  deriving  from 
such  technologies  shall  be  excluded 
from  the 
calculation  in  paragraph  5.2.  However,  identifiable 
benefits  may  result  when  large  civil  aircraft 
manufacturers are responsible  for, or have early  access 
to, the conduct or results of such research. 

If  a  Party  has  reason  to  believe  that  other  indirect 
supports  provided  by  a  government  are  resulting  in 
identifiable  reductions  in  the  costs  of  large  civil 
aircraft, the Parties shall consult with a view towards 
quantifying  such  reductions  and  including  them  in  the 
calculation described above. 

Benefits  from  indirect  support  resulting  from  the 
technology  obtained  through  government-funded  research 
and development  or through  other  government  programmes 
shall normally be calculated  in terms of the reduction 
in  the  cost  of  research  and  development  and  in  the 
reduction  in  the  cost  of  the  production  equipment  or 
production process technology. 

Article 6 

General Purpose Loans 

Parties  shall  assume  no  liability  for  specific  loans  that 
aircraft  manufacturers  make  or  make  available,  through 
direct  loans, guarantees,  or  otherwise,  to  airlines,  other 
than  through  official  export  credit  financing  consistent 
with  the  Large  Aircraft  Sector  Understanding  of  the  OECD 
Understanding on Official Export Financing. 

Article 7 

Equity Infusions 

Equity  infusions  are  excluded  from  the  scope  of  this 
Agreement.  Equity  infusions will  not, however, be provided 
in  such  a  manner  as  to  undermine  the  disciplines  in  the 
Agreement. 

Article 8 

Transparency 

8.1  To  the  extent 

necessary 

to  ensure  effective 
implementation  of  this  Agreement,  Parties  shall 
exchange  on  a  regular,  systematic  basis,  all  public 
information  of  a  kind  governments  make  available  to 
their  respective  national  elected  assemblies  relating 
to matters  covered  by  this  Agreement  and  its Annexes. 
Such  public  information  will  include  at  minimum  the 
total amount of government  support  for new  development 
projects  and  its  share  of  total  development  costs, 
aggregate data on disbursements and repayments relating 
to  direct  government  supports  for  commercial  aircraft 
programmes,  the  annual  commercial  turnovers  of  the 
civil  aircraft  industry  as  specified  in Article  8.5  b 
and  the  aggregate  amounts  of  identifiable  indirect 
aircraft 
benefits 
manufacturers. 

received 

civil 

large 

by 

8.2  Furthermore, 

to 

with 

prior 

regard 

government 
commitments  for  large  civil  aircraft  programmes 
described  in  Article  2,  a  complete  list  of  such 
commitments  by  the  Parties  to  this  Agreement  already 
disbursed  or  committed  shall  be  separately  provided, 
including  information  on  the  type  of  repayment 
obligation and the planned period of repayment.  Annual 
disbursements  and  repayments  relating  to  these 
programmes on an aggregate basis shall also be notified 
to the other  Party  for each  government  providing  these 
supports.  In addition, a  Party  shall  notify  the  other 
Party to this Agreement of any changes which render the 
terms  and  conditions  of  such  support  commitments  more 
favourable to the recipient, including: changes  in the 
repayment  period;  failure  to  repay  the  support;  or 
reduction of the scheduled repayments. 

8.3  Furthermore, with regard to future large civil  aircraft 
programmes,  Parties  shall  provide,  at  the  time  of 
government 
specific 
information  in relation to development support for each 
of the governments providing such support: 

commitment, 

following 

the 

the total amount of government support; 

the share of government support as a percentage of 
estimated total development cost; 

- 

the anticipated  return to the government; 

the planned period of repayment of  government 

support; and 

the  forecast  number  of  planes  on  which  the 
calculations  made  in  accordance  with  Article  4.2 
are based. 

8.4  In  the  course  of  the  consultations  provided  for  under 
Article  11  of  this  Agreement,  Parties  shall  exchange 
information  on  government  commitments  and  support  for 
each  of  the  governments  providing  such  support 
including but not limited to: 

-  any  changes  which  render  the  terms  and  conditions 
more  favourable  to the  recipient, including:  changes 
in  the  repayment  period;  failure  to  repay  the 
support;  or  reduction  of  the  scheduled  repayments; 
and 

- annual  disbursements  and  repayments  on  a  per 
programme  basis  for  new  programmes  launched  in 
accordance with Article  4.  Such  information  will  be 
provided  at  the  first  regular  consultation  taking 
place  at  least  twelve  months  after  the  end  of  the 
year  in  which  the  disbursements  and  repayments  are 
made. 

8.5  In the course of consultations under Article 11, 

a)  Parties  will  on  an  annual  basis  provide 
information  on  new  government-funded  research  and 
development  undertaken  or  initiated  during  the 
previous  year  and  on  ongoing  research  and 
development  projects  in  the  aeronautical  area, 
including  per programme  details on those  projects 
in  which  large  civil  aircraft  manufacturers 
participate.  This  shall  include  information  on 
the area of activity  and the amount  of  government 
funding for such projects. 

b)  Parties  will  provide  information  on  identifiable 
benefits  derived  from  indirect  supports  for  each 
large civil aircraft  programme. 

This  will  include  recoupment  per  programme  received 
from large civil aircraft manufacturers.  The following 
specific  information  will  be  provided  on  an  annual 
basis  for  each  of  the  governments  providing  such 
support: 

1)  the  annual  commercial  turnover  of  the  civil 
aircraft  industry  in  the  Party  concerned  in 
relation to products covered by the Agreement; 

2)  the  annual  commercial  turnover  in  relation  to 
products covered by the Agreement of each firm 
in  the  Party  concerned  which  manufacturers 
products covered by the  Agreement; and 

3)  the  total  amount  of  indirect  benefits  as 
defined  in Article  5.2  for the  civil  aircraft 
industry  in  relation  to  the  products  covered 
by the Agreement and for each firm  involved in 
the manufacture of such products. 

8.6  If  a  Party  considers  that  additional  information 
directly  relevant  to  the  implementation  of  the 
provisions  of  this  Agreement  is  necessary,  such 
information  will  be  provided  upon  duly  motivated 
request. 

8.7  Parties  shall  upon  duly  motivated  request  provide  at 

the time of  commitment  of  new development  support non 
proprietary  information  on  the  critical  project 
appraisal  in  so  far  as  this  relates  to  the  provisions 
of Article 4.1. 

the 

information, 

8.8  Any information not in the public domain, which a Party 
may  provide,  shall  at  the  request  of  the  Party 
providing 
as 
be 
proprietary. 
A  recipient  government  shall  take  all 
measures  necessary  to  ensure  that  information  thus 
designated  not  be  disclosed  to  anyone  outside  that 
government  even  after  expiry  or  termination  of  the 
present 
proprietary 
In 
information  shall  not  be  used  in  possible  trade 
disputes  except  for  the  purposes  of  confidential 
internal  government  discussion  and  decisions  in 
relation to the implementation of the Agreement. 

Agreement. 

considered 

addition, 

8.9  Parties shall, unless otherwise  indicated, exchange the 
information  specified  above  on  an  annual  basis.  Any 
disagreement  concerning  information  to  be  provided 
pursuant  to  this  Article  shall  be  resolved  through 
consultations under Article 11. 

8.10  Parties  shall  provide  information  on  new  infusions  of 
equity  or  changes  in  equity  positions  by  governments 
into  firms  engaged  in 
civil  aircraft  production, 
including the amount and type of equity provided. 

8.11 Parties will encourage firms engaged  in the manufacture 
of  large  civil  aircraft  to  increase  the  public 
disclosure  of  disaggregated  financial  results  of  their 
civil  aircraft  operations  through  the  separation  of 
reporting  on military  and  civilian  aircraft  operations 
and  the  adoption  of  lines  of  business  financial 
reporting.  These disaggregated  financial results would 
at  a  minimum  be  expected  to  include  information  on 
sources  and  uses  of 
specific 
information  on  revenue,  operating  income,  net  assets, 
capital  investment and government equity infusions. 

funds  including 

8.12 Nothing  in this Agreement shall be construed  to require 
any  contracting  Party  to  furnish  any  information  the 
disclosure  of  which  it  considers  contrary  to  its 
essential  security interests. 

Article 9 

Exceptional Circumstances 

9.1  Where,  as  a  result  of  an  unforeseen,  exceptional 
situation, the survival  of a significant  proportion  of 
the  civil  aircraft  manufacturing  activities  in  one  of 
the  Parties1  and  the  continued  financial  viability  of 
the  company  or  the  division  of  a  company  responsible 
for  such  civil  aircraft  manufacture  are  put  in 
jeopardy, that Party may derogate temporarily  from  the 
disciplines  laid  down  in  this  Agreement. 
In  this 
context,  the  disaggregated  financial  results  of  civil 
aircraft  operations  will  be  reported  publicly  by  that 
company  or  division2. 
This  derogation  may  not  be 
invoked,  however,  in  respect  to  the  disciplines 
applying to the launch of new civil aircraft programmes 
as specified  in Article 4. 

9.2  The  Party  concerned  shall  provide  notice  of  its 
intentions  to  the  other  Party  and  an  opportunity  for 
prior  consultations  unless  it  is  prevented  from  doing 
so for legal reasons and shall  in any event notify the 
other  Party  immediately  of  its  reasons  for  invoking 
this Article  and  fully  disclose  the  specific  measures 
which it has taken, including the amount and  nature of 
the measures, and their expected duration. 

9.3  Specific  measures  taken  by  a  Party  in  accordance  with 

this Article: 

a)  shall  be  limited  in  scope  and  duration  to  the 
the 

extent 
difficulties referred to in paragraph 1; 

necessary 

strictly 

remedy 

to 

b)  shall be designed to return as quickly as possible 

the beneficiary company to commercial viability; 

c)  shall 

take  due  account  of  the 

possible 
implications  for  other  large  civil  aircraft 
manufacturers and shall avoid depressing prices on 
the  world  market  for  civil  aircraft  by  the 
manufacture  of  inventory  for  which  no  firm  order 
exists. 

1  For the purposes of this paragraph, "Parties" shall be deemed to include any of the individual  Member 
States of the EC. 

2  These disaggregated financial results would at a minimum include information  on sources and uses of 
funds including specific information  on revenue, operating income, net assets, capital investment and 
government equity  infusions. 

10 

9.4  If, after consultations pursuant to Article 11, a Party 
determines  that  the  action  taken  under  this  Article 
significantly  undermines  the  objectives  of  this 
Agreement,  it shall have  the  right  to  suspend  some or 
all of the provisions of this Agreement or to terminate 
it within 15 days of the conclusion of consultations. 

Article 10 

Avoidance of Trade Conflicts and Litigation 

10.1 Parties  shall  seek  to  avoid  any  trade  conflict  on 

matters covered by the present Agreement3. 

10.2 They will not self-initiate action under their national 
trade laws with respect to government  supports granted 
in conformity with this Agreement  for  as  long  as this 
However,  nothing  in  this 
Agreement  is  in  force. 
paragraph  shall  prevent  a  Party  from  abrogating  this 
Agreement  on  grounds  of  non-compliance  by  the  other 
Party. 

10.3 In  order  to  avoid  trade  conflict  they  will  strongly 
encourage  private  parties  to  request  the  use  of  the 
provisions  of  Article  11  to  resolve  any  disputes  on 
matters  covered  by  this  Agreement. 
If,  however, 
private petitioners request that action be taken under 
national laws on matters covered by this Agreement, the 
petitioners'  government  will  immediately  inform  the 
other  Party  and  offer  to  enter  into  consultations  in 
accordance  with  Article  11.  The  Party  against  whom 
such action  is brought  shall  have the  right  either to 
suspend  the  application  of  some or  all  the  provisions 
of the present Agreement  or to terminate the Agreement 
15 days after the conclusion of consultations. 

10.4 In  the  conduct  of  any  investigations  of  trade 
allegations  concerning  products  covered  by  this 
Agreement that have been initiated under national trade 
laws as the result of private petitions, Parties shall, 
consistent 
of 
representations concerning compliance with the terms of 
this Agreement. 

account 

their 

with 

take 

law 

?  Action  with respect to "matters covered  by the present  Agreement"  refers to trade actions relating to 
direct and  indirect  government  support as defined  by this Agreement.  It does not  include actions relating 
to dumping, intellectual  property  protection, or anti-trust or competition  laws. 

11 

Article 11 

Consultations 

11.1 Parties  shall  consult  regularly  and,  in  any  case,  at 
least  twice  a  year,  to  ensure  correct  functioning  of 
the Agreement. 

11.2 A  Party  may  request  consultations  on  any  development 
related  to  the  functioning  of  the  present  Agreement. 
Such consultations shall be held not later than 30 days 
following the date on which the request is received. 

11.3 Parties  agree  to  seek  to  resolve  any  disputes  within 
three  months  of  the  date  of  the  initial  request  for 
consultations.  Consultations will not be deemed to be 
concluded  for the purposes of Articles 8 and 9 of this 
Agreement before this three-month period has expired. 

Article 12 

GATT Agreement on Trade in Civil Aircraft 

12.1 The Parties shall propose  jointly to other  signatories 
of  the  Aircraft  Agreement  that  disciplines  along  the 
lines of  those  laid  down  in the present  Agreement  and 
the  interpretative  note  given  in  Annex  I  be 
incorporated  into  the  aforementioned  GATT  Agreement. 
The  Parties  shall  also  propose  that  the  improved 
dispute  settlement  provisions  agreed  in  the  Uruguay 
Round be used to resolve any dispute arising out of the 
implementation of the new Aircraft Agreement. 

12.2 The  Parties  shall  make  their  utmost  efforts  to  ensure 
that these or similar disciplines are incorporated  into 
the Aircraft Agreement or adopted by key signatories at 
the  earliest  possible  date,  and  also  to  expand  the 
coverage of the disciplines provided  by this Agreement 
to  all  of  the  products  covered  in  the  Aircraft 
Agreement. 

12.3 If  multilateralisation  has  not  been  achieved  in  one 
year,  the  Parties  shall  review  the  question  of  the 
continued application of this bilateral Agreement. 

12 

Article 13 

Final Provisions 

13.1 This Agreement  shall  enter  into  force  on  the  date of 

its acceptance by both Parties. 

13.2 This Agreement may be amended by mutual consent of the 
Parties  to  take  into  account  any  new  situation  which 
may arise including possible amendments to the Aircraft 
Agreement. 

13.3 One year after the entry into force of this Agreement, 
either  party  may  withdraw  from  the  Agreement.  If  a 
Party wishes to withdraw from the present Agreement it 
shall  notify  the  other  Party  in  writing  of  its 
intentions.  The withdrawal shall take effect 12 months 
after the date on which the notification was received. 

13 

ANNEX I 

INTERPRETATION OF ARTICLE 4 OF THE 
GATT AGREEMENT ON TRADE IN CIVIL AIRCRAFT 
BY SIGNATORIES OF THE AGREEMENT 

Article  4 of  the  GATT Agreement  on Trade  in  Civil  Aircraft 
("the  Agreement") deals with three specific issues: 

government^directed procurement  (paragraph 2) 

mandatory sub-contracts  (paragraph 3) 

inducements  (paragraph 4) 

ARTICLE 4-1 

Paragraph  4.1  states  the  general  principle,  applicable 
throughout  Article  4,  that  purchasers  of  civil  aircraft4 
should  be  free  to  select  suppliers  on  the  basis  of 
commercial  and technological factors. 

ARTICLE 4.2  (Government-Directed  Procurement) 

This  paragraph  states  that  "signatories  shall  not  require 
airlines, aircraft  manufacturers, or other  entities  engaged 
in  the  purchase  of  civil  aircraft,  nor  exert  unreasonable 
pressure  on  them,  to  procure  civil  aircraft  from  any 
particular source, which would create discrimination  against 
suppliers from any signatory". 

This  means  that  signatories  must  abstain  from  imposing 
preference policies in favour of or against the suppliers of 
one or more signatories. 

Unreasonable  government  pressure  relating  to  the  selection 
of  suppliers  by  airlines, aircraft  manufacturers  or  other 
entities  engaged  in  the  purchase  of  civil  aircraft 
("purchasers") is also prohibited.  "Unreasonable pressure" 
is  any  action  favouring  products  or  suppliers,  or  which 
influences  procurement  decisions  in  a manner  which  creates 
discrimination against suppliers from any other signatory. 

4  For the purpose of the Annex, "civil aircraft"  is defined as in Article 1 of the GATT Agreement on 
Trade in Civil  Aircraft. 

14 

The  signatories  agree  that  the  following  are  examples  of 
practices which are not considered  as exerting  unreasonable 
pressure: 

the  participation  of  government  or  former  government 
representatives  on  the  boards  of  wholly  or  partly 
government-owned purchasers but only if they act in the 
best  commercial  interest  of  the  purchaser  concerned, 
and do not  influence procurement decisions in a manner 
which creates discrimination against suppliers from any 
other signatory. 

government 
environmental considerations. 

decisions 

concerning 

safety 

and 

ARTICLE 4.3  (Mandatory Sub-Contracts) 

The first sentence states  that  "signatories  agree  that the 
purchase of products covered by the Agreement should be made 
only  on  a  competitive  price,  quality  and  delivery  basis". 
This  means  that  signatories  will  not  intervene  to  obtain 
favoured  treatment  for particular  firms and  that  they will 
not interfere with the selection  of vendors  in a situation 
where vendors of different signatories are competing. 

By  emphasising  that  the  only  factors  which  should  be 
involved  in  purchase  decisions  are  price,  quality  and 
delivery terms, the signatories agree that Article 4.3 does 
not permit Government-mandated  offsets.  Further, they will 
not require that  other  factors, such as subcontracting,  be 
made a condition or consideration of sale.  Specifically, a 
signatory may not require that a vendor must provide offset, 
specific  types  or  volumes  of  business  opportunities,  or 
other types of industrial compensation. 

Signatories shall not therefore  impose conditions requiring 
subcontractors or suppliers, to be of a particular national 
origin. 

The  second  sentence  of  this  paragraph  states  that  "in 
conjunction  with  the  approval  or  awarding  of  procurement 
contracts for products covered by this Agreement a signatory 
may...  require  that  its  qualified  firms  be  provided  with 
access to business opportunities on a competitive basis and 
on  terms  no  less  favourable  than  those  available  to  the 
firms of  other  signatories."  This  means  that  a  signatory 
may require that  the manufacturer  not discriminate  against 
the  signatory's  qualified  firms  with  respect  to  any  bid 
opportunities and to the evaluation of any competitive bids 
made by those firms. 

15 

Article 4.4  (Inducements) 

This  paragraph  states  that  "signatories  agree  to  avoid 
attaching  inducements of any kind to the sale or purchase of 
civil aircraft  from any particular source which would  create 
discrimination  against  suppliers  from any  signatory". 

This  means  that  signatories  shall  refrain  from  the  use  of 
negative  or  positive  linkages  between  the  sale  or  purchase 
of civil aircraft  and other government  decisions  or policies 
which  might  influence  such  sale  or  purchase  whenever  there 
is  a  competition  between  suppliers  of  signatories. 
The 
following  is  an agreed  illustrative, non-exhaustive  list of 
such prohibited  inducements: 

- 

- 

rights  and  restrictions  relating  to  the  airline 
industry  such as landing or route rights. 

general  economic  programmes  and  policies,  such  as 
import  policies,  measures  aiming  at  changes  in 
bilateral  trade  imbalances,  policies  on  alien  workers 
or debt  rescheduling. 

development  assistance programmes  and policies, such  as 
grant  aid,  loans  and  infrastructure  financing;  it  is 
understood  that  the  use  of  such  assistance  for  the 
purchase  of  civil  aircraft  does  not  fall  under  this 
category to the extent that the granting  of  these  funds 
is not conditional  on such purchase taking  place. 

- 

defence and national  security policies and  programmes. 

Without  prejudice  to  Article  4.3,  this  also  means  that 
signatories  shall  not  intervene  in  any  way,  nor  exert  any 
direct  or  indirect  pressure  on  other  governments  or  any 
entity  involved  in  procurement  decisions,  including  the 
establishment  of  any  link  of  a  negative  or  positive 
character  between  decision  concerning  the  procurement  of 
civil  aircraft  and  any  other  issue  or  action  in  any  other 
area  which  might  affect  the  interest  of  the  importing 
country. 

ARTICLE 4.2  and  4.4  (Political  Representations) 

All  participants  of  signatories  in  the  domestic  political 
decision-making  process shall not take any action,  including 
but  not  limited  to  political  representations,  pressure  or 
inducements  to  other  governments  or  foreign  airlines, which 
would be contrary  to Article  4 as interpreted  in this Annex. 
Signatories  shall  draw  the  participants'  attention  to  this 
interpretation  of  Article  4,  and  shall  also  use  their  best 
efforts  to  assure  that  the  participants  do  not  take  such 
action. 

16 

ANNEX II 

For  the  purposes  of  the  present  Agreement  the  following 
definitions shall  apply: 

1.  "large civil  aircraft" 

With  respect  to  such  aircraft  produced  in  the  US  by 
existing  manufacturers  of  large  civil  aircraft  and  in 
the  European  Community  by  the  Airbus  consortium,  or 
their  successor  entities,  all  aircraft,  as  defined  in 
Article  1  of  the  GATT  Agreement  on  Trade  in  Civil 
Aircraft,  except  engines  as  defined  in  Article  1.1(b) 
of  the  Aircraft  Agreement,  that  are  designed  for 
passenger  or  cargo transportation  and  have  100 or more 
passenger 
cargo 
its 
configuration. 

equivalent 

seats 

or 

in 

2. 

"derivative"  means  an  aircraft  model  the  major  design 
elements  of  which  are  derived  from  a  prior  aircraft 
model. 

3.  "total development  cost" as referred to in Article 4.2. 

The following cost  items, incurred prior to the date of 
certification,  are  those  which  may  be  taken  into 
account  in  assessing  the  "total  development  cost" 
referred to in Article 4.2. 

preliminary  design 

engineering  design 

wind-tunnel, structural, system  and 
laboratory tests 

- 

engineering  simulators 

equipment development work, except for work 
directly  financed by equipment and engine 
manufacturers 

flight tests, including  associated ground support, 
and analysis necessary to obtain certification 

documentation  required  for certification 

17 

- 

the cost of manufacture of prototypes and test 
aircraft, including spares and such modifications 
as may be necessary to obtain certification, less 
the estimated  fair market value of flight  aircraft 
after  refurbishment 

- 

jigs and tools, except machine tools, for use 
on specific programmes. 

4. 

"production" 

All manufacturing, marketing and sales activities other 
than  those  described  under  point  3  above  with  the 
exception 
financing 
consistent with the Large Aircraft Sector  Understanding 
of the OECD Understanding on Official Export  Financing. 

of  official 

credit 

export 

5. 

"indirect government support" 

Financial  support  provided  by  a  government  or  by  any 
public  body  within  the  territory  of  a  Party  for 
aeronautical  applications,  including  research  and 
development, demonstration  projects  and  development  of 
military  aircraft,  which  provide  an  identifiable 
benefit to the development or production of one or more 
specific  large civil aircraft programmes. 

6. 

"direct government support" means any financial  support 
provided  by  a  government  or  by  any  public  body  within 
the territory of a Party which  is provided: 

(1)  for  specific  large  civil  aircraft  programmes  or 

derivatives or 

(2)  to  specific  companies  to  the  extent  that  large 
civil  aircraft  programmes  or  derivatives  directly 
benefit. 

7. 

"royalty  payment"  means  repayment  of  a  certain 
predetermined  amount  of  development  support  per 
aircraft  delivered. 

ISSN 0254-1475 

COM (92) 222 final 

DOCUMENTS 

EN 

07 

Catalogue number: CB-CO-92-232-EN-C 

ISBN 92-77-44492-4 

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