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Fri, May 20, 2011

Boeing, European Commission See WTO Appellate Review Very Differently

Both Interpret Appellate Body Ruling As Vindicating Their Point Of View

Both Boeing and the European Commission have released statements indicating that the ruling by an appellate body of the WTO vindicates their position on government subsidies to the planemakers.

“This is a clear, final win for fair trade that will level the playing field for America’s aerospace workers,” said Jim McNerney, Boeing chairman, president and chief executive officer. “The WTO has concluded that launch aid and other illegal Airbus subsidies distorted the market, harmed U.S. industry and now must end. The administration—particularly the Office of the U.S. Trade Representative—and the Congress are to be commended for their long-standing efforts in this case to enforce global trade rules. We join them in calling for immediate compliance with this landmark ruling,” McNerney said.

“The WTO has rendered its final verdict, and now Europe must comply within 6 months,” said Boeing Executive Vice President and General Counsel J. Michael Luttig.

But from across the Atlantic: "I am particularly pleased with this important result," said EU Trade Commissioner Karel De Gucht. "The U.S. central claim that Airbus received prohibited export subsidies has been dismissed in its entirety. In addition, a number of claims, relating to R&D and infrastructure among others, were either rejected or only partially accepted."

According to Beoing, the WTO confirmed that Airbus received $18 billion in illegal subsidies (principle amounts only). That includes $15 billion in launch aid, including $4 billion for the A380, without which Airbus could not have developed its fleet of airplanes. It also includes $3 billion in non-launch aid subsidies, which alone exceeds the $2.7 billion of un-remedied U.S. subsidies to Boeing (mainly NASA R&D spending) that the WTO identified in a separate ruling in March and that currently is under appeal.

“Airbus and its government sponsors have tried to justify their illegal subsidy practices by claiming that Boeing benefited equally from government R&D contracts,” Luttig said. “But the WTO in March categorically rejected that argument, dismissing 80% of the EU’s claims against the United States and confirming the huge competitive advantage Airbus has as a result of massive illegal government subsidies.”

Luttig stressed that Europe’s obligations resulting from today’s decision do not hinge on the ultimate WTO decision in the European case against the United States. “Europe must end all practices held illegal by today’s decision—particularly launch aid; government loans for the A350 and future products must be on proven commercial terms,” he said.

Luttig also answered recent calls by Europe for a negotiated settlement. “I understand why Airbus and its sponsor governments now want to negotiate. For 40 years they have relied on massive injections of launch aid, which today were confirmed to be illegal. We’re not interested in a settlement that would allow a continuation of illegal launch aid—the most pernicious, market-distorting subsidy of all,” he said. “Airbus currently has more than $17 billion of cash on hand. It can well afford to bring itself into compliance with the WTO ruling and thereafter develop airplanes without illegal aid from European governments.”

“The WTO rules, combined with the ruling in this case, give clear guidance on what governments can and cannot do to support their respective aerospace industries. These rules will govern all market participants and help ensure that competitions are won or lost based on the merits of the respective product offerings rather than on government subsidies,” he said.

The European Commission, however, said the Appellate Body overturned several key findings made by the Panel. Most importantly, the Appellate Body found that support provided by Germany, Spain and the UK for the launch of Airbus' A380 aircraft is not a prohibited export subsidy under WTO Law. It also rejected the U.S. appeal that other instances of Repayable Launch Investment (RLI) were export subsidies.

According to the EC, the Appellate Body report, which is final and will soon be adopted by the WTO's Dispute Settlement Body, contains a number of clear findings – vindicating many of the EU's long held positions – including:

  • Repayable Launch Investment (RLI) for the A380 granted by Germany, Spain and the UK is not a prohibited export subsidy.
  • All R&D programs in the EU (European, national and regional) are fully compatible with WTO rules, especially relevant when compared to the findings on NASA and Department of Defense support in the Boeing case.
  • Treatment of infrastructure – the U.S. challenge on Aeroconstellation in France has been fully rejected, and the finding for the Muhlenberger Loch facility in Hamburg substantially improved.
  • The French government's transfer of its interest in Dassault Aviation to Aerospatiale in 1998 was not a subsidy.
  • The Appellate Body reduced the element of subsidy that may exist in RLI, giving greater weight to the EU's proposed benchmark. It also substantially reduced the impact of adverse effects findings made by the Panel, reflecting the limited damage to Boeing from Airbus subsidies.

Certain "actionable subsidy" findings do remain, even though the economic impact of these support measures in the Large Civil Aircraft (LCA) market has been found to be very limited. RLI may contain an element of subsidy, however nowhere near the alleged amount of $15-20 billion. Certain old equity infusions and restructuring measures by France and Germany, infrastructure measures in Germany and certain regional grants by Spain and Germany also remain. The Commission will closely study the report in consultation with stakeholders in order to determine the next steps in this dispute.

The EC said in its statement that the ruling is a further step to establishing the full picture of government support to the Large Civil Aircraft (LCA) industry on both sides of the Atlantic. In the EU's challenge of U.S. support to Boeing, the Panel found that Boeing received prohibited export subsidies under the Foreign Sales Corporation scheme, and programs by NASA, the Department of Defense and Washington State tax breaks have caused wide-ranging adverse effects to Airbus. Appeals to this panel report by the EU and the U.S. are currently pending.

FMI: http://ec.europa.eu/index_en.htm, www.boeing.com/wto 

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