WTO final ruling: Airbus subsidies illegal, hurt Boeing

McClatchy NewspapersMarch 23, 2010 

WASHINGTON — European governments illegally subsidized Airbus, allowing it to overtake Boeing and become the world's largest commercial airplane company, the World Trade Organization found in a final ruling Tuesday that could have trans-Atlantic repercussions, lawmakers who were briefed on the decision said.

The ruling, which upheld interim findings released last September, will remain confidential for several months, but it was delivered to the Office of the U.S. Trade

Representative and its European counterpart.

"Today's final ruling puts any doubts to rest — launch aid is an illegal subsidy that has cost America jobs, hurt our ability to compete and damaged our overall economy," Sen. Patty Murray, D-Wash., said in a statement after being briefed.

Also briefed was Rep. Norm Dicks, D-Wash., who said later that the WTO had concluded that Airbus "could not have achieved the growth of market share — harming U.S. workers — without its pattern of illegal assistance.

"The ruling validates the U.S. government's long-standing contention that the European Union governments were utilizing this improper launch aid to steal American jobs, and it provides compelling evidence that we should use to demand Airbus begin playing by the rules," Dicks said.

The Europeans are expected to appeal.

The ruling is apparently a victory for Boeing, with the WTO finding that the U.S. aerospace company had been harmed over the years. How Airbus could be punished remained unclear, though, along with what it would need to do to rectify that financial advantage. If it fails to take action, however, the U.S. eventually could impose billions of dollars in punitive tariffs or other sanctions.

Over the next 20 years, the world's airlines are expected to order more than $3.3 trillion worth of jets. Japan, China, Canada, Brazil and even Russia are considering building their own aircraft to compete with Boeing and Airbus.

The Airbus subsidy case is considered the largest and most complicated trade dispute ever.

The WTO said that four European countries — France, Germany, Britain and Spain — provided Airbus with risk-free loans, known as launch aid, to develop and build its aircraft.

Boeing has said that Airbus received more than $15 billion worth of subsidies, which in today's dollars could have a true market value of roughly $200 billion.

Airbus received its first airplane order in 1971 and less than 40 years later had more than half the market for commercial airplanes. Through the late 1980s, Boeing had almost two-thirds of the market.

Boeing called the WTO decision a "powerful, landmark ruling and good news for aerospace workers across America who for decades have had to compete against a heavily subsidized Airbus."

In a statement, Boeing said the ruling should "level the competitive playing field once and for all with Airbus" and established a precedent for other nations that are thinking about launching their own commercial airplane businesses with subsidies.

"Markets, not parliaments, should pick the winners in the global aerospace market," Boeing said.

Airbus, in its own statement, said that the WTO had rejected 70 percent of the U.S. claims in the subsidy case. Airbus also said that the European "reimbursable loan mechanism" was found to be a legal part of any relationship between government and industry.

"Airbus expects the WTO conflict to drag on for at least a few more years," its statement said, adding that the issue will be resolved only with trans-Atlantic negotiations.

The WTO is expected to rule later this year in a separate case brought by the Europeans alleging that Boeing received its own subsidies from the federal, state and local governments.

Tuesday's ruling could further inflame the already testy relationship between the U.S. and Europe over airplanes.

European leaders recently slammed the Pentagon for allegedly designing a competition for a $35 billion aerial-refueling tanker contract that favored Boeing at the expense of the European Aeronautic Defense and Space Co., Airbus' parent company.

French President Nicolas Sarkozy has said he'll raise the issue with President Barack Obama during a visit to Washington in coming weeks. The Pentagon is considering a request from the Europeans to extend the bid deadline for the new tankers.

The WTO ruling covers all of Airbus' aircraft, including the A300, A330, A340 and the A380.

Airbus still owes the four European governments $4 billion in loans for its A380 super jumbo jet. The zero interest or low-interest loans might have to be repaid sooner as a result of the WTO ruling and Airbus might have to take out commercial loans to pay them off.

Also at issue is the $5 billion in launch aid that the European governments have offered Airbus to help develop the new A350, which would compete directly with Boeing's new 787 Dreamliner. The A350 subsidies weren't a direct part of the WTO case, but Boeing supporters say they're crucial to solving the dispute.

"It's amazing to me that at the height of the Cold War when the U.S. was spending billions of dollars in Europe, four countries would get together in an effort to destroy the U.S, aerospace industry," said Loren Thompson, an analyst with the Lexington Institute, a national security research center in northern Virginia.

Thompson has just completed a Boeing-funded study on the subsidies.

"We don't want a trade war here," Thompson said. "But we have to make it clear to the Europeans we won't tolerate it anymore."

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