7/31/2019 Boeing and Airbus - Article in the Economist, London - 4th Sept 09

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Boeing and Airbus

Round one to BoeingSep 4th 2009From Economist.com

The WTO rules on Boeing and Airbus

ON FRIDAY trade representatives of the European Union and America were handed the

confidential preliminary findings of the investigation by the World Trade Organisation(WTO) into launch aid advanced to Airbus. The expectation was that the WTO would findthat European government aid to Airbus has been in breach of WTO rules, although noformal public announcement was due to be made. A definitive ruling will not emerge forseveral more weeks, and even then Airbus will have 90 days to appeal if the verdict hasindeed been to rule its launch aid illegal.

In this the biggest dispute to come up for WTO arbitration, the likely finding will be acomfort to the American government and Boeing, on whose behalf the complaint was madenearly five years ago. Theoretically the WTO ruling, if confirmed and not over-turned onappeal, could cause a trade war between the European Union and America. But there is

little appetite for such escalation in the present state of the world economy. Moreover, bothBoeing and Airbus are big buyers of parts and suppliers of finished aircraft in each othershome markets. So trade friction even confined to the aerospace sector could becounterproductive.

From 1992 until 2004 aid to civil aircraft production was governed by a bilateral deal from1992. That deal limited repayable government launch aid by European governments toAirbus to one third of the development cost of a new aircraft. Indirect aid of various sorts

http://www.wto.org/http://www.airbus.com/en/http://www.boeing.com/aboutus/govt_ops/wto.htmlhttp://ec.europa.eu/trade/http://www.wto.org/http://www.airbus.com/en/http://www.boeing.com/aboutus/govt_ops/wto.htmlhttp://ec.europa.eu/trade/

7/31/2019 Boeing and Airbus - Article in the Economist, London - 4th Sept 09

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to Boeing by arms of the American government was limited to 3% of its turnover. TheEuropeans wanted both sorts of aid considered at the same time, but the Americans heldout for a separate WTO ruling on their launch aid complaint, before an Airbus counter-claim on industrial subsidies to Boeing is heard.

Boeing walked away from the original 1992 deal when Airbus was planning to launch thedouble-decker plane now known as the A380, designed to challenge Boeings monopoly ofthe 400-seat-plus market. In its WTO complaint the US Trade Representatives office saidAirbus had received $205 billion in launch aid to develop the product range that nowshares half the world market with Boeing. Airbuss counter-argument is that its subsidy isrepayable by a levy on every aircraft sold and that this arrangement is transparent. Airbussoon counter-filed, claiming that Boeings latest passenger aircraft, the 787 (which is overtwo years late and has yet to fly) was the most subsidised aircraft in history, withdevelopment work channelled to Boeing from the Department of Defence and NASA, theaerospace agency. For the 787 in particular Airbus claimed that American states and eventhe Japanese offered subsidies to get a share of the work on the revolutionary all-composite

aircraft. A ruling on this Airbus counter-claim is expected in six months or so. After that,both sides will appeal against the verdicts to the trade body.

The only analogous dispute was between Brazil and Canada in the late 1990s when bothcountries were pouring aid into Embraer and Bombardier, respectively their nationalchampions making regional, narrow-bodied passenger jets. In that case, both parties werefound to have broken WTO rules, and government assistance carried on more or less asbefore. The Boeing-Airbus dispute has a much higher profile and it will be difficult toreach a settlement acceptable to both America and the European Union. The irony is thatthe most likely outcome is some kind of reinvention of the old 1992 bilateral arrangement,laying down clear rules. But crafting such a deal could take years. Howard Wheeldon, an

aviation expert at BGC Partners, an investment firm, reckons it will take until 2013 beforethe various appeals from both sides have been heard and some sort of wirkable compromise

has been agreed.

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