EU claims ‘major win’ in Boeing subsidy case
A Boeing aircraft takes off in Belgium | Philippe Huguen/AFP via Getty
The European Commission claimed a “major win” Monday, saying that the World Trade Organization ruled Boeing received $5.7 billion of illegal subsidies in the form of tax breaks from Washington State.
Airbus hailed the ruling as a “knockout blow” and a watershed moment for the 12-year-old battle between Airbus and Boeing over state support — the longest running trade dispute since the WTO was founded in 1995. The case now looks set to become an important test of commercial ties between the world’s biggest trade bloc and the administration of incoming U.S. President Donald Trump.
Boeing immediately disputed the sum cited by the Commission and retorted that Airbus had benefited from far greater subsidies.
The WTO ruled that some of the tax incentives provided by Washington State to Seattle-based Boeing were prohibited as they encouraged the company to manufacture parts — including the wings — of its new 777X aircraft within the state.
The EU said this was the first time in the Airbus/Boeing clash that one of the companies was found to have received direct subsidies that discriminated against foreign producers.
“Today’s WTO ruling is an important victory for the EU and its aircraft industry. The panel has found that the additional massive subsidies of $5.7 billion provided by Washington State to Boeing are strictly illegal. We expect the U.S. to respect the rules, uphold fair competition, and withdraw these subsidies without any delay,” said EU Trade Commissioner Cecilia Malmström.
Boeing rejected Malmström’s account of the case: “In total, the EU claimed that Boeing had received $8.7 billion in subsidies. This claim was rejected by the WTO, which found future incentives totaling no more than $50 million a year to be impermissible.”
J. Michael Luttig, Boeing’s general counsel, also suggested that Airbus was on the hook for far more.
“Today’s decision is a complete victory for the U.S., Washington State and Boeing,” he said. “The WTO found in September that Airbus has received $22 billion in illegal subsidies from the EU and that without these subsidies neither Airbus itself nor any of its airplanes would even exist today.”
In an example of the eternal claim and counter-claim that has come to epitomize the case, one industry source then poured cold water on Luttig’s $22 billion figure.
“The $22 billion Boeing claim is greatly exaggerated. They are the sum of all the loans Airbus has received from EU countries, but the WTO has ruled those loans legal except for minor tweaks, meaning the number doesn’t make sense,” he said.
Today’s ruling requires Washington State and Boeing to remove the subsidies within 60 days or appeal the ruling.
“I have little faith in the U.S. compliance with the rulings. The 777X case shows total disrespect for the WTO,” said Fabrice Brégier, Airbus’s chief operating officer.
The options for the two chief rivals of the aerospace industry are stark: either to sit down and settle or enter into a damaging WTO-sanctioned trade war.
In September, a WTO compliance panel ruled that European governments had failed to adequately address illegal subsidies previously found by the WTO and that they further breached WTO rules by granting more than $4 billion in new subsidized financing for the Airbus A350 XWB. This caused tens of billions of dollars of damage to the U.S. industry, according to the United States Trade Representative.
The EU appealed the ruling in September and a final decision is expected in the spring of 2017.
Bigger problems to solve
Despite the acrimony of the subsidies’ cases, it is becoming increasingly clear that Airbus and Boeing need to worry about each other less, as their duopoly wanes.
Industry officials said Canada, Brazil, Russia and China are all entering the lucrative aerospace market and are using government subsidies to gain ground.
“Canada is a small player, but what happens when China starts subsidizing its aerospace agency?” one industry source asked.
Both Boeing and Airbus fear China’s track record with government subsidies.
From steel to aluminum and electricity prices, Beijing has never been shy about helping its industry grow and expand by undercutting competition with aggressively lower prices.
The problem is Boeing and Airbus do not want to sue Chinese aerospace companies and bring them to the WTO.
“If Boeing sues China, Beijing buys Airbus. If Airbus sues China, Beijing buys Boeing. There is no way out,” said an industry official before underlining how “China is 25 percent of the aerospace market, Boeing and Airbus need those markets.”
The message is clear: Without co-operation, Boeing and Airbus will find it impossible to counter Chinese aerospace subsidies at the WTO.
“The only way out of the ridiculous series of disputes is to agree on a set of globally applicable rules for the support of the civil aircraft industry, which would benefit both sides of the Atlantic,” said Tom Enders, Airbus’ chief executive.
“The duopoly is no longer the framework of reference in the future. Look at the huge subsidies the Canadian government has granted to Bombardier just recently, look at the upcoming competition from Russia and Asia,” he added.