Boeing and Airbus ready to square off afresh on subsidies

Boeing and Airbus ready to square off afresh on subsidies

by Tom Miles and Tim Hepher  2016-08-17 05:44:50.0

GENEVA/PARIS — The world’s two largest jet makers are bracing for the next round in a transatlantic spat over aircraft subsidies, amid accusations of widening US support for Boeing and persistent European aid to Airbus.

After a yearlong lull, the world’s biggest trade dispute will enter a crucial phase in coming months, potentially casting a shadow over faltering efforts by the EU and US to negotiate a wider free-trade deal.

At stake are mutual claims of unfair subsidies to the two aircraft makers that raise the prospect of $22bn a year in threatened trade sanctions, but many say a resolution is years away and could ultimately involve a negotiated settlement.

The dispute dates to 2004 when the US urged the World Trade Organisation (WTO) to act against European government loans to help Airbus develop jets, followed by a counterclaim from the EU over federal and local aid for Boeing.

In separate rulings, the WTO found both aircraft makers had benefited from billions of dollars of unfair subsidies.

The case is now bogged down in argument over whether each side complied with orders to withdraw illegal subsidies and undo the effects of the greater part of aid which, although not banned, can be challenged if it can be proved to be damaging.

After a three-year delay due to the strain placed on its resources by the marathon dispute, the WTO is expected to rule within weeks whether the EU obeyed its rulings, followed by a similar report on US compliance early in 2017.

Both sides claim the other has ignored the judgments and appeal findings in each case and have sought WTO permission to draw up sanctions, with the US calling for up to $10bn in countermeasures and the EU $12bn.

The cases affect tens of thousands of aerospace jobs and are seen as the biggest test of a multilateral system for resolving trade disputes since the WTO was founded in 1995.

Any sanctions could further complicate relations as the US and EU remain bogged down in differences over a proposed Transatlantic Trade and Investment Partnership, amid growing antitrade sentiment on both sides of the Atlantic.

A third WTO dispute affecting the world’s two largest aircraft makers is simultaneously gathering pace.

Last year, the EU complained Boeing was set to receive unfair support for its latest aircraft, the 777X, from Washington state thanks to an $8.7bn package of expanded tax breaks.

In a confidential draft report, a WTO panel found Boeing would get some fresh subsidy from the tax decision, although it rejected several EU arguments, three people familiar with the case said.

One European source called it an important win for the EU.

A US source denied it, saying claims that the EU is poised to win the case are “false”, and a distraction from its inaction over earlier WTO rulings.

The WTO and all the parties declined to comment.

No publication date has been set for the interim findings, but they are typically released a few months after parties see a copy. Previous WTO rulings on aircraft subsidies have been bitterly disputed, with both sides finding support for their arguments in the trade body’s decisions and there are no signs that this report will be any different when it is published.

In parallel previous rulings, the WTO found both sides had doled out subsidies worth billions of dollars to their leading aircraft makers, sparking feuds between Airbus and Boeing over which side had won a greater percentage of the arguments in each case.

The latest dispute over Washington tax measures adds a third pillar to the sprawling trade dispute and, just like earlier cases, is expected to take years of legal arguments and appeals.

The EU argues that the 2013 package of preferential business tax rates, tax credits and tax exemptions represented subsidies to Boeing in return for securing the coveted 777X jetliner work.

It also claims the support falls into the WTO’s most severe category, that of “prohibited” subsidies, because it depends on the use of domestic over imported goods. US industry sources argue the measures are available to any aerospace company in the state and do not fall into the WTO’s subsidy net.

Reuters

The new generation Boeing 737-800 with attached winglets. Picture: SUPPLIED

Boeing 737-800. Picture: SUPPLIED

GENEVA/PARIS — The world’s two largest jet makers are bracing for the next round in a transatlantic spat over aircraft subsidies, amid accusations of widening US support for Boeing and persistent European aid to Airbus.

After a yearlong lull, the world’s biggest trade dispute will enter a crucial phase in coming months, potentially casting a shadow over faltering efforts by the EU and US to negotiate a wider free-trade deal.

At stake are mutual claims of unfair subsidies to the two aircraft makers that raise the prospect of $22bn a year in threatened trade sanctions, but many say a resolution is years away and could ultimately involve a negotiated settlement.

The dispute dates to 2004 when the US urged the World Trade Organisation (WTO) to act against European government loans to help Airbus develop jets, followed by a counterclaim from the EU over federal and local aid for Boeing.

In separate rulings, the WTO found both aircraft makers had benefited from billions of dollars of unfair subsidies.

The case is now bogged down in argument over whether each side complied with orders to withdraw illegal subsidies and undo the effects of the greater part of aid which, although not banned, can be challenged if it can be proved to be damaging.

After a three-year delay due to the strain placed on its resources by the marathon dispute, the WTO is expected to rule within weeks whether the EU obeyed its rulings, followed by a similar report on US compliance early in 2017.

Both sides claim the other has ignored the judgments and appeal findings in each case and have sought WTO permission to draw up sanctions, with the US calling for up to $10bn in countermeasures and the EU $12bn.

The cases affect tens of thousands of aerospace jobs and are seen as the biggest test of a multilateral system for resolving trade disputes since the WTO was founded in 1995.

Any sanctions could further complicate relations as the US and EU remain bogged down in differences over a proposed Transatlantic Trade and Investment Partnership, amid growing antitrade sentiment on both sides of the Atlantic.

A third WTO dispute affecting the world’s two largest aircraft makers is simultaneously gathering pace.

Last year, the EU complained Boeing was set to receive unfair support for its latest aircraft, the 777X, from Washington state thanks to an $8.7bn package of expanded tax breaks.

In a confidential draft report, a WTO panel found Boeing would get some fresh subsidy from the tax decision, although it rejected several EU arguments, three people familiar with the case said.

One European source called it an important win for the EU.

A US source denied it, saying claims that the EU is poised to win the case are “false”, and a distraction from its inaction over earlier WTO rulings.

The WTO and all the parties declined to comment.

No publication date has been set for the interim findings, but they are typically released a few months after parties see a copy. Previous WTO rulings on aircraft subsidies have been bitterly disputed, with both sides finding support for their arguments in the trade body’s decisions and there are no signs that this report will be any different when it is published.

In parallel previous rulings, the WTO found both sides had doled out subsidies worth billions of dollars to their leading aircraft makers, sparking feuds between Airbus and Boeing over which side had won a greater percentage of the arguments in each case.

The latest dispute over Washington tax measures adds a third pillar to the sprawling trade dispute and, just like earlier cases, is expected to take years of legal arguments and appeals.

The EU argues that the 2013 package of preferential business tax rates, tax credits and tax exemptions represented subsidies to Boeing in return for securing the coveted 777X jetliner work.

It also claims the support falls into the WTO’s most severe category, that of “prohibited” subsidies, because it depends on the use of domestic over imported goods. US industry sources argue the measures are available to any aerospace company in the state and do not fall into the WTO’s subsidy net.

Reuters

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