Both Sides Say The Body Ruled In Their Favor ... Again

Here we go again. In the ongoing public relations battle between the U.S. and Europe over subsidies to airline manufacturers, both sides are again claiming victory.

In a news release Monday, United States Trade Representative Ron Kirk announced Monday that the United States has prevailed in a World Trade Organization (WTO) dispute over claims by the European Union (EU) related to The Boeing Company. The WTO Appellate Body rejected claims that the United States has provided massive trade-distorting subsidies to Boeing and affirmed a dispute settlement panel’s March, 2011 finding that most of the programs challenged by the EU were not subsidies. Further, the Appellate Body affirmed that the value of WTO-inconsistent subsidies was far below what the EU alleged.

“This decision is a tremendous victory for American manufacturers and workers – and demonstrates the Obama Administration’s commitment to ensuring a level playing field for Americans,” Ambassador Kirk said. “It is now clear that European subsidies to Airbus are far larger – by multiples – and far more distortive than anything that the United States does for Boeing. The United States is ready to address all of the WTO findings, and we expect Europe to do the same. Airbus is a mature, highly capable company with ready access to commercial financing. It doesn’t need the launch aid that European governments are continuing to provide. It is time for European governments to get out of the way and let Boeing and Airbus compete on even terms.”

Boeing says Monday’s decision stands in stark contrast to the Appellate Body’s finding in May, 2011 that the EU gave Airbus $18 billion in subsidized funding, which resulted in lost market share and lost sales involving 342 large civil aircraft produced in the United States. In Monday’s findings, Boeing says, the comparable figures were between $3 and $4 billion in U.S. subsidies, and lost sales of just slightly more than 100 aircraft.

Boeing contends that the Appellate Body slashed earlier findings of harm to Airbus from U.S. subsidies.  "The decision confirms that in terms of amount, effect and nature, U.S. government support to Boeing is minimal in comparison to the massive European subsidies provided Airbus," Boeing said in a statement.  

According to Boeing:

• With respect to amount, the Appellate Body found that unaddressed subsidies to Boeing total approximately $3 billion – about one-sixth of the $18 billion Europe has given to Airbus.
• With respect to effects, the Appellate Body rejected 66% of the EU's claims that Airbus had lost sales as a result of U.S. subsidies and more than 93% of its claims that it had lost market share.  Boeing has had to compete with an entire fleet of subsidized Airbus aircraft that the WTO found would most likely not even exist without illegal launch aid, while Airbus competes against a Boeing product line that received little support from the U.S. government according to today's ruling. 
• With respect to nature, the WTO found that launch aid was a pernicious, market-distorting subsidy without which Airbus itself would most likely not have existed and no Airbus aircraft would have been built at all.  By contrast, the WTO has now found that Boeing has received little U.S. government support during the same time period since the formation of Airbus.
• In sum, the WTO decisions in the two cases establish conclusively and finally that European subsidies competitively disadvantage Boeing and American workers and will continue to do so until launch aid is eliminated. 

Boeing said that Airbus has not shown the same commitment to compliance with the WTO's decisions and rules. The EU had until Dec. 1, 2011, to comply with the ruling against the illegal Airbus subsidies, and it refused to comply. Airbus continues to benefit from billions of dollars of government loans that do not carry commercial terms and that the WTO found to be illegal market-distorting subsidies. What's more, European governments have recently provided billions of dollars in new launch aid for the next Airbus model, the A350, continuing this illegal practice in defiance of the WTO.   

"The U.S. government has made it clear that it will use all of the WTO tools at its disposal to ensure that European governments comply with last year's ruling – particularly the ruling against $15 billion in illegal launch aid, the pernicious subsidy unique to Airbus," the statement says. "Boeing supports and appreciates the strong stance the U.S. Trade Representative has taken to force European compliance and finally insist upon the level playing-field necessary for fair and open global competition."

The WTO Dispute Settlement Body is likely to adopt this report at a meeting later this month. The United States will then have six months to come into compliance with the WTO rulings.

Airbus, of course, sees the ruling differently. The European planemaker said in a news release that the WTO report confirms and even extends previous WTO findings. The Report confirms the existence of illegal U.S. subsidies to Boeing – previously identified by the WTO as “at least $5.3 billion” and extended by billions of US dollars as a result of the decision – resulting in an estimated loss of approximately $45 billion in sales for Airbus. Despite earlier Boeing claims that only minimal actions to comply with WTO rules were necessary, it has become clear Monday that Boeing will have to make major changes to comply with this final WTO ruling. 

“The Appellate Body has now spoken in both the Airbus and Boeing cases,” said Rainer Ohler, Airbus’ Head of Public Affairs and Communications. “Comparing the core claims made by both sides, the net outcome is clear. Boeing’s cash grants are fundamentally illegal, while the system of loans to Airbus by European governments is legal and may continue. Boeing and the U.S. now will have six months to implement the WTO decision.” 

Airbus says the decision is a broad repudiation of the US’s arguments in this case – rejecting every single US appeal regarding the subsidies given to Boeing and nearly all of its appeals as to the competitive harm that those subsidies impose, while accepting every single EU point of appeal.

The WTO Appellate Body’s report highlights the scale of illegal support to Boeing funded by U.S. taxpayers.  The final decision confirms the facts already available from the previous Panel Report: 

• Boeing has already received “at least $5.3 billion” of U.S. taxpayer dollars, determined to be illegal.
• Boeing is set to receive at least an additional $2 billion in illegal state and local subsidies in the future under existing illegal schemes.
• The effect of the subsidies is significantly larger than their face value in light of their “particularly pervasive” nature.
• These pervasive subsidies have thoroughly distorted competition within the aviation industry, directly resulting in significant harm to the European aerospace industry.
• Boeing would not have been able to launch the 787 without illegal subsidies.

“Consequently, the B787 – previously known as the “Dreamliner” – is now to be called the “Subsidy-liner” (B7aid7). The WTO ruling proves it is the most highly subsidized aircraft in the history of aviation”, commented Rainer Ohler.

Furthermore, Airbus contends, the report also expands on earlier WTO findings to reveal additional illegal and anti-competitive features of the support provided to Boeing. Specifically, the WTO Appellate Body agrees with the European Union that: 

• Every single one of the 23 U.S. Department of Defense (DOD) and all eight of the NASA research grant programmes are illegal subsidies.
• The U.S. Government’s many transfers to Boeing of intellectual property rights for technology developed at U.S. taxpayers’ expense were illegal subsidies.
• The WTO has now also embraced the EU appeal by determining that an additional approximately $500 million in state and local support from Kansas are also illegal subsidies that must be withdrawn. 

Airbus went on to congratulate the European Commission and the Governments of France, Germany, the UK and Spain for their success at the WTO and is grateful for the years of effort they have invested in setting the record straight.

“Boeing and the U.S. only have six months to end decades of illegal corporate welfare for Boeing and fundamentally change the way the U.S. Government supports the commercial aerospace business: a disappointing outcome for those who launched this battle. Without compliance, massive sanctions will result – conclusively dispelling the U.S. and Boeing’s public smokescreen that the WTO’s findings will have no relevant consequences for Boeing,” Ohler concluded.

FMI: www.wto.org