By Julie Johnsson
| Boeing Co. and the U.S. government scored a sweeping victory Tuesday in
an escalating trade battle with the European Union over government
subsidies provided to France’s Airbus SAS.
A final report issued by a panel of the World Trade Organization found
that four European governments illegally provided Airbus with
below-market-rate financing to develop jetliners, giving it an unfair
advantage over Chicago-based Boeing, say people familiar with the
confidential report.
The scope of the illegal aid was “sweeping,” involving the vast majority of Airbus planes developed over four decades, and amounting to many billions of dollars, said a person who read the report.
Boeing hailed the decision as a “landmark” and said that subsidies to Airbus for every aircraft it has developed “have significantly distorted the global market for large commercial airplanes, causing adverse effect to Boeing and costing Americans tens of thousands of high-tech jobs.”
Boeing’s win should discourage other governments from making illegal hand-outs to bolster fledgling aircraft industries, analysts said.
But the decision’s impact may be muted by the German government’s decision Monday, to push through with 1.1 billion in Euros for launch aid for the next Airbus jet. If the EU appeals the ruling, as expected, it would be many years before the U.S. would likely be able to retaliate.
The 2004 case filed by the U.S. trade representative claimed that Airbus unfairly profited from $15 billion in launch aid for new aircraft, a large portion of the $25 billion total government aid it has received since 1970.
A WTO panel is expected to rule this summer on a countercase filed by the Europeans claiming that Boeing benefited from $23.7 billion in unacceptable state and federal aid, including incentives of $24.3 million to move its headquarters to Chicago.
Airbus downplayed the magnitude of Boeing’s win in statements Tuesday, and analysts don’t expect it to modify its course to mollify the trade group. Airbus noted that the WTO panel, as in an interim report, determined that launch aid per se wasn’t illegal and that the financing didn’t cause “material injury” to any U.S. interest.
“The panel has now reconfirmed what we have always said: reimbursable loans are a legal instrument, and they have not caused one single job loss to the U.S. aerospace industry,” said Allan McArtor, chairman of Airbus Americas. “Instead, Airbus has brought competition, ensuring healthy choice for our customer airlines.”
The cases are likely to further inflame trade relations between the two economic superpowers and bolster claims by both sides that the other is engaging in protectionism, analysts said.
The trade maelstrom threatens to further politicize the already contentious bidding over a $35 billion contract to provide the U.S. Air Force with new tankers, as well as financing that European governments have pledged to the A350-XWB program, Airbus’s answer to Boeing’s Dreamliner 787.
The governments will have to find a way to resolve their differences, probably through a new bilateral agreement on civil aircraft manufacturing, to restore calm and to set trade rules for nations including China, Russia, Canada and Brazil that are vying for a larger share of the market dominated by Boeing and Airbus.
“What must be decided is whether their operations from here on out will confer real benefits to the world community in the form of cutting-edge products,” said Brian Havel, director of the International Aviation Law Institute at the DePaul University College of Law. “Or if they will become the basis for a needless, counterproductive and potentially destructive trade war between two of the world’s economic giants.”
The WTO case gives Boeing supporters on Capitol Hill fresh ammunition with which to contest a tanker bid by Airbus-parent European Aeronautic Defense and Space Co. EADS indicated Friday it was mulling making a bid for the tanker contract and asked the Air Force to postpone the May deadline for entries by 90 days.
The defense contractor’s previous U.S partner, Northrop Grumman Corp. , withdrew this month after concluding that, under current rules, it stood little chance of winning with a tanker based on the Airbus A330 jet.
With Tuesday’s ruling, Air Force purchasing officials will likely face new pressure to incorporate the WTO cases into their labyrinthine rules for selecting a tanker.
“It’s clear that the A330, the very plane Airbus would offer our military, has received illegal subsidies that have hurt American workers,” said Sen. Patty Murray (D-Wash.). “Now’s not the time to delay this competition further. Especially not for a company that is undercutting our workers.”
French President Nicolas Sarkozy and other European leaders, meanwhile, have accused the U.S. government of “protectionism,” claiming the tanker contest rules were devised to favor Boeing’s 767 over the Airbus A330.
They may soon face charges from Boeing and the U.S. of purposefully ignoring the WTO if they proceed with plans to provide billions of Euros to finance the A350, expected to enter service in late 2013.
“[J]udging by past statements from the European Commission, it appears they are treating the ruling as an independent matter and will continue with the launch aid plans,” said Havel. “In other words, they were never too concerned about what the WTO was going to say.”
