News Backgrounder
Time to let go in subsidy war?
There are two sides to every story. The long running battle between Airbus and Boeing over alleged government subsidies is hardly different.
June 1st 2018
On the surface, it seemed clear cut. The World Trade Organization (WTO), in a landmark ruling last month, decided Airbus had received illegal government funding to develop its jets, costing rival Boeing sales. Read More »
“Today’s final ruling sends a clear message: disregard for the rules and illegal subsidies are not tolerated. The commercial success of products and services should be driven by their merits and not by market distorting actions,” said Boeing chairman, president and chief executive, Dennis Muilenburg.
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“Now the WTO has issued its final ruling, it is incumbent upon all parties to fully comply as such actions will ultimately produce the best outcomes for our customers and the mutual health of our industry.”
Not so fast, said Airbus chief executive Tom Enders. “Today’s significant legal success for the European aviation industry confirms our strategy which we have followed over all those years of the dispute. Of course, today’s report is really only half the story. The other half coming out later this year will rule strongly on Boeing’s subsidies and we’ll see then where the balance lies.”
The result is simple, he added. “Airbus pays back its loans. Boeing pays back nothing and continues to exploit the generosity of the U.S. taxpayer. Despite Boeing’s rhetoric, it is clear that their position today is straight forward healthy. They have half the market and a full order book. They have clearly not been damaged by Airbus repayable loans.”
The European plane maker said the WTO confirmed there have been no prohibited subsidies at Airbus, although minor elements of actionable subsidies have to be addressed.
“Repayable launch investment” is confirmed as a legal financing mechanism for aircraft development and the WTO has confirmed compliance was fully achieved on the A320 and the A330, and remaining tweaks on A380 and A350 are only minor, it said.
Realistically, the latest ruling will not be the end of the matter. A separate decision, scheduled for later this year, is expected to rule on a European Union (EU) challenge that billions of dollars in U.S. tax incentives have been delivered to Boeing. All of this is increasing tension between the U.S. and Europe after U.S. President Donald Trump’s decision on steel and aluminum tariffs and his withdrawal from the nuclear treaty with Iran.
The signs point to the U.S. being prepared to impose sanctions on the European Union. U.S. Trade Representative, Robert Lighthizer, said: “Unless the EU finally takes action to stop breaking the rules and harming U.S. interests, the United States will have to move forward with countermeasures on EU products.”
The U.S. said the WTO decision affirms a ruling that France, Germany, Spain and the U.K. have failed to adequately remedy market-distorting aid for the launch of Airbus’s A380 jet, infrastructure support and equity investments that unfairly benefited the plane-maker.
The WTO added that the bloc compounded the issue with below-market loans for the A350 jetliner and that the financing hurt sales of Boeing’s B747 and B787 which in turn reduced exports to the EU, Australia, China, Korea, Singapore and the United Arab Emirates. The trade body also upheld an earlier finding that the EU aid had no adverse effect on the market for single-aisle jet sales, the largest source of profit for Boeing and Airbus. The size of U.S. tariffs to be allowed will be determined through a WTO arbitration process and will be based on the annual harm to U.S. and Boeing. The U.S. has previously said losses from range $7 billion to $10 billion a year.
Airbus is not going away. It said that on the A350, minor elements of the ruling remain to be addressed and it is implementing changes to respond to the findings. “While Airbus is preparing to make adjustments to fully implement the WTO recommendations, Boeing continues to make its own subsidy matters worse with abusive Washington State tax breaks that are bad for taxpayers and global trade harmony alike,” it said.
