From time to time a new episode in Airbus and Boeing’s 14 year-old litigation over alleged subsidies comes out, adding to the case’s complexity, like when the appellate body of the WTO’s Dispute Settlement Body issued its latest ruling on May 15th.
The decision confirmed some of Boeing’s allegations against Airbus and dismissed others, but it isn’t clear which party actually benefits. What is clear however is that this is a “poorly timed development”, as Teal Group Corporation VP of Analysis Richard Aboulafia pointed out, given the broader context of tariffs and unilateral trade measures that may trigger yet another wave of sanctions and counter-sanctions between the US and the EU, further harming the global aerospace industry.
As always, there is no clear-cut conclusion, and both Boeing and Airbus claimed victory following the ruling. Airbus CEO Tom Enders stated that the ruling was a “significant legal success for the European aviation industry”, and the company claims that 94% of Boeing’s complaints were rejected in the appeal process. The impact of the remaining, confirmed subsidies is so little that any US retaliation sanctions against the UE should only be minimal, Airbus head of litigation Karl Hennessee told the Seattle Times. Boeing on the other hand, said that the ruling made clear that $9bn of launch aid from European countries to the A350 and A380 programs caused significant harm to its business – between $7bn and $10bn, it estimates – and would “translate into billions of dollars in tariffs on European exports to the U.S. annually” as retaliation.
So, what are the facts? There are actually two Airbus vs Boeing subsidies cases evolving in parallel since October 2004, one filed by the US against the UE and vice-versa. They have turned into an aggregate of rulings and appeals before the Dispute Settlement Body, and accusations made by both parties against one another throughout the years, regarding numerous alleged subsidies, under various forms such as tax breaks, repayable advances, complacent R&D contracts or preferential loans, to help develop and export several of their respective programs. Since 2004, the mutual accusations have regularly grown in volume and adapted to the aircraft programs that were competing on the market. Needless to say, it’s a real headache.
In the latest episode, Boeing accused Airbus of having received some $22bn of launch aid from European countries to help bring the A350 and later the A380 programs on the market, allegedly damaging the American company’s business by $7bn to $10bn, as mentioned above.
On the other side, Airbus accuses Boeing from having benefited from over $20bn in tax breaks from the state of Washington to sustain the 777 and 787 programs, causing Airbus $16bn in sales loss, though Boeing claims this figure would in fact be as low as $377mn… The WTO’s Dispute Settlement Body is expected to rule on these accusations in the months to come.
Now, what did last month’s ruling actually settle? It confirmed that Airbus received improper subsidies for the A350 and A380 programs but that the launch aid itself was not illegal, contradicting Boeing’s paramount claim; “Airbus could have proceeded with the A350 without [the aid], concluded the WTO, a lawyer involved in the matter told Leeham News. It’s the way the aid was administered, in the form of preferential loans from European countries, namely France, Germany, the UK and Spain, that was improper.
Thus, the loans’ rates should simply be reset to a market level. The panel also found that a complain made by Boeing in 2011 that Airbus had failed to comply with a 2010 decision according to which it should reimburse previous irregular subsidies or remedy to improperly low rates, was not founded. This ruling cannot be appealed and is, theoretically, final. Following the decision, European Trade Commissioner Cecilia Malmström stated that the EU would “take swift action to ensure it is fully in line with the W.T.O.’s final decision in this case”.
A few days later the Union claimed it had “achieved full compliance” with the decision by agreeing on certain confidential amendments to the government loans “where it was found that [they] did not sufficiently reflect market conditions”. However, a US representative at the WTO said that it was hard to give credence to the EU’s assertion. Under WTO treaties, the US is now in position to ask the Dispute Settlement Body to determinate the amount of unilateral (and perfectly legal) trade sanctions that the US can enforce against the UE in reparation for Boeing’s allegedly damaged business….
But there is more at stake. As mentioned above, the Appellate Body is expected to rule on the second part of the 14 year-old case, directed against Boeing this time, which is just as likely to enable European sanctions against the US. Both parties know better than to make another step toward a trade war between the US and the EU and on May 28th, the US Trade Representative stated that “to be clear, the U.S. preferred outcome is a mutually agreed solution with respect to aircraft financing. The United States remains ready to hold serious discussions to achieve this goal”, to which Airbus answered “If that is the case, we are happy to start a constructive discussion to find a solution to this long-lasting dispute”.
At the start, it seemed there was hope for negotiation. The UE on June 6th began a WTO dispute consultation, a process whereby the defendant party presents the plaintiff and other WTO members with the compliance measures it has taken (which remain confidential for the public) to implement the appellate body’s decision, with hopes it helps trigger negotiations and diffuse sanctions… But it’s likely it won’t. The USTR’s office later told Leeham News that “nothing had changed”, and that the fact the UE didn’t consult with the US directly instead of going through the WTO dispute consultation “questioned whether [the UE] was serious in seeking a solution”. Citing another undisclosed source, Leeham News then warned that “no negotiations will be undertaken unless Airbus drops launch aid entirely”, although it was not found to be illegal…
Thus, it’s likely that the Airbus vs Boeing case is about to add even more pressure to an already tense atmosphere of unilateral trade measures, already marked by the Trump Administration’s decisions to increase tariffs on foreign steel and aluminum and reestablish sanctions against Iran, both of which are doing harm to both the European and American aerospace industries. The worst is that WTO proceedings “could ultimately be irrelevant”, points out Jens Flottau from Aviation Week in a June 1st article. Indeed, all governments are deeply involved – and have always been – in aerospace; and ultimately, he points out, “it is almost impossible to determine who gets what and how that compares with the competition”. How should a case like Bombardier’s CSeries be treated? What of COMAC’s C919 and the Chinese aerospace industry, which deeply rely on government funding? In the end, Jens Flottau concludes, “financial support is therefore the norm rather than the exception, and it is becoming ever harder to make comparisons”.
Written by ADIT – The Bulletin and republished with permission.