Boeing and U.S. score big trade victory against Airbus and EU

World Trade Organization rules against European subsidies to aviation giant

March 23, 2010|By Julie Johnsson, Tribune reporter

Boeing Co. and the U.S. government scored a major victory Tuesday amid escalating trade tension, when the World Trade Organization ruled that European Union members illegally subsidized France's Airbus SAS.

A final report issued by a WTO panel found that four European governments illegally gave Airbus below-market-rate financing to develop jetliners, an unfair advantage that it used to overtake market-leader Boeing, say people familiar with the confidential report.

The scope of the illegal aid was "sweeping," involving many Airbus planes developed over its three-decade history and amounting to billions of dollars, said a person who read the report.

Chicago-based Boeing hailed the decision as a "landmark" and said the subsidies "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 illegally bolstering fledgling aircraft industries, legal experts said.

But the ruling's impact may be muted. In a show of defiance, Germany indicated it would help fund the next Airbus jet on the drawing boards, the A350-XWB. If the EU appeals the WTO finding, as expected, it would be many years before the U.S. would be able to retaliate.

"The only thing it will change? The Democrats will be more likely to go to bat for Boeing and try to get tough with Europe about the A350 development aid," said aviation analyst Richard Aboulafia.

A WTO panel is also expected to rule this summer on a counter-case filed by the Europeans claiming that Boeing benefited from $23.7 billion in prohibited state and federal aid, including $24.3 million to relocate its headquarters to Chicago.

Airbus downplayed Boeing's win in statements Tuesday, and analysts don't expect Airbus to modify its course to mollify the trade group. Airbus noted that the WTO panel 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.

The WTO disputes are likely to further inflame trade relations between the two economic superpowers and bolster protectionism charges that both sides have made. The Europeans believe the U.S. has rigged a $35 billion U.S. Air Force tanker contract in Boeing's favor. The U.S. believes the EU is flouting the WTO by providing launch aid to the A350 program, Airbus's answer to Boeing's 787 Dreamliner.

The two sides must resolve their differences, most likely by reaching a new bilateral trade agreement, if they are to have any hope of restricting subsidies in nations such as 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 DePaul University's International Aviation Law Institute. "Or if they will become the basis for a needless, counterproductive and potentially destructive trade war between two of the world's economic giants."

Boeing supporters on Capitol Hill are already using the WTO ruling to argue against allowing Airbus-parent European Aeronautic Defense and Space Co. to enter the tanker contest with a bid based on the A330, one of the jets determined to have received illegal subsidies.

"Unfair subsidies must not influence the U.S. Air Force's air-refueling-tanker competition," said Sen. Maria Cantwell, D-Wash. "EADS cannot be allowed to use these subsidies to lowball its bid for this important defense contract."