U.S. and Boeing see WTO ruling as huge victory in dispute over Airbus subsidies

By:  Alan Boyle
Source: Geekwire

The World Trade Organization turned up the heat on Europe’s aerospace industry today by ruling that Airbus was continuing to benefit from what’s now estimated at $22 billion in subsidies from the European Union and its member countries.

U.S. Trade Representative Michael Froman hailed the decision as a “sweeping victory” in a dispute that has been simmering for more than a decade, with the Boeing Co. cast as the principal victim of Airbus’ subsidies.

“This long-awaited decision is a victory for fair trade worldwide, and for U.S. aerospace workers in particular,” Dennis Muilenburg, Boeing’s chairman, president and CEO, said in a statement.

Both of Washington state’s U.S. senators and several House members praised the development as well.

The WTO’s latest action marks one more step toward imposing retaliatory trade sanctions that could amount to as much as $10 billion a year.

However, U.S. trade officials acknowledge that there are likely to be further appeals and deliberations over the months and years ahead. Speaking on background with reporters, they said they hoped the ruling would bring European officials to the negotiating table for a resolution of the long-running Boeing-Airbus dispute.

In addition to the U.S. government’s complaints about Airbus subsidies, the WTO has been considering the European Union’s complaints about Boeing subsidies – including $8.7 billion in tax breaks that Washington state provided to get Boeing to build its 777X jet in Everett.

The WTO is expected to rule on how well the U.S. is complying with limits on subsidies sometime next year, and there’s a chance the ruling will go against the federal government. But even if that happens, trade officials argue that Europe’s subsidies are much more egregious.

The global trade organization’s compliance panel found that the European Union as well as Germany, France, Britain and Spain were continuing to flout previously mandated restrictions on subsidies, primarily by providing “launch aid” for new airplane models. Such aid generally takes the form of loans made to Airbus on terms that are more advantageous than what’s available commercially.

Today’s report confirmed the WTO’s previous rulings that European countries provided $15 billion in launch aid for Airbus jet models ranging from the A300 through the A380, plus $2 billion in other subsidies. In an added twist, the WTO found for the first time that Airbus received almost $5 billion in launch aid for its superjumbo A350 XWB.

The compliance report determined that Boeing lost tens of billions of dollars in sales because of the subsidies. Those lost sales included 271 Boeing 737s due to the A320 subsidies. Fifty lost sales in the twin-aisle market, which includes the 767, 777 and 787, were attributed to European subsidies to the A330, A340 and A350 XWB. And the A380 subsidies were blamed for 54 lost sales of Boeing 747 jets.

In a previous ruling, the WTO said that “without the subsidies, Airbus would not have existed … and there would be no Airbus aircraft on the market.” Today’s report upheld that view, sparking sharp comments from J. Michael Littig, executive vice president and general counsel at Boeing.

“The World Trade Organization has now found that Airbus is and always has been a creature of government and of illegal government subsidy,” he said. “The day of reckoning for launch aid has finally arrived.”

However, the European Union took issue with that interpretation. “An important win for the EU is that the panel rejected new U.S. claims that repayable support for the Airbus models A350 XWB and A380 are ‘prohibited subsidies,'” the Financial Times and The Wall Street Journal quoted an EU spokesman as saying.

Airbus said “only tiny tweaks” would be required to bring its launch aid arrangements into full compliance.

Almost 80,000 employees work for Boeing Commercial Airplanes, accounting for a little more than half of total Boeing workforce. Most of those employees live in Washington state, and Boeing’s jet manufacturing operations in Everett and Renton support hundreds of smaller suppliers in the region. For that reason, politicians from Washington state were among the first to hail today’s WTO action.

Here’s a sampling of the comments:

  • Sen. Patty Murray, D-Wash.: “This ruling is so important to my home state of Washington and to all the American workers who show up every day in this country to build world-class products. When other countries get away with breaking the rules, it puts our industries – and so many family-wage jobs up and down the supply chain – at risk.”
  • Sen. Maria Cantwell, D-Wash.: “This is the largest trade ruling from WTO in history – and they have sided with U.S. manufacturers. The $22 billion in unfair trade subsidies to Airbus from the Europeans are illegal and must stop. This is a huge victory for Northwest aerospace workers who have been building world-class airplanes for years.”
  • Rep. Rick Larsen, D-Wash: “Today’s announcement confirms what the U.S. has suspected for some time: that the European Union was unfairly subsidizing Airbus at the expense of American companies and workers – including many in my district. I will continue to work so that American workers get a fair shot and so that U.S. trading partners who break the rules are held accountable.”
  • Rep. Dave Reichert, R-Wash.: “Today’s confirmation that the EU continues to illegally subsidize aircraft and must be held accountable is not only a huge victory for the United States and the over 260,000 workers employed by the aerospace industry in my home state of Washington, but it is a win for the rule of law and for all those who believe that trade rules are critical to empowering U.S. workers and consumers to compete in the 21st-century economy.”
  • Rep. Suzan DelBene, D-Wash.: “This ruling is a major win for Washington workers, who deserve equity in a competitive global marketplace.”