WTO Appellate Body ruling: Everybody wins?

Another WTO ruling is in, and (as usual), both sides of the dispute are claiming complete victory. The WTO Appellate Body has ruled on the US complaint against support given by EU member states to Airbus, reversing some decisions of an earlier WTO panel while leaving others intact.

The ruling is just the latest chapter in the dispute over subsidies to manufacturers of large commercial aircraft. Each side accuses the other of providing billions in subsidies for their home aircraft manufacturers, thereby distorting the competitive landscape. The process has been rumbling on since late 2004, and with another report yet to come, it will continue to do so for some time.

Given the complexity and ambiguous nature of the appellate body’s ruling, it is understandable how both Airbus and Boeing, not to mention EU and US trade and political representatives, can claim victory and keep the rhetoric flowing.

Airbus called the report a “final blow to the Boeing-sponsored myth that government support to Airbus somehow caused harm to Boeing”. Airbus believes the WTO has now confirmed definitively that government loans are a legal instrument and that none of the government loans made to Airbus over the past 40 years were prohibited. The EU Trade Commissioner Karel De Gucht said that the “central claim that Airbus received prohibited export subsidies has been dismissed in its entirety."

Boeing labelled the report an affirmation of the “landmark decision that European subsidies to Airbus are illegal”. It said the report confirms that Airbus has received USD15 million in launch aid and USD3 billion in non-launch aid subsidies.

The US Trade Representative said the report “confirmed without a doubt that Airbus received massive subsidies for more than 40 years and that these subsidies have greatly harmed the US, including causing Boeing to lose sales and market share in key markets throughout the world.”

Pick and choose your victory

The reality is that this decision is a mixed bag for both sides, as is most likely to be the case when the body rules on the WTO panel decision regarding the European case against US subsidies for Boeing.

The WTO body found that launch aid has indeed “caused serious prejudice to the interests of the US” and was used for financing almost all Airbus aircraft. It has also upheld the ruling that certain equity infusions and certain infrastructure measures provided by the French and German governments to companies that formed part of the Airbus consortium harmed US interest.

Specifically, it noted that the effect of the subsidies was to displace Boeing sales in the EU, China, Korea and Australia. The body confirmed the determination that the subsidies caused Boeing to lose sales of aircraft in the campaigns involving the A320 (AirAsia, Air Berlin, Czech Airlines and easyJet), A340 (Iberia, South African Airways and Thai Airways) and A380 (Emirates, Qantas and Singapore Airlines).

The report puts the ball firmly in the EU’s court. The appellate body ruled that actionable subsidies that have been found to cause adverse effects to the interests of the US. The WTO recommendation that the EU “take appropriate steps to remove the adverse effects or … withdraw the subsidy” stands.

Balanced against this, the report has excluded earlier findings that some infrastructure and R&D grants injured Boeing, and reversed findings of displacement in Brazil, Mexico, Singapore and Chinese Taipei, and of threat of displacement in India.

Crucially, the appellate body also rejected the US’ cross-appeal of the finding that it had not been established that certain other Member State financing contracts constituted prohibited export subsidies, reversing the earlier WTO recommendation that the EU withdraw prohibited subsidies within 90 days.

It also reverses an earlier finding that UK, German and Spanish launch aid for the A380 "amounted to prohibited export subsidies” – an issue that has been a particular sore point with Boeing. It also rejected the US appeal of the finding that it had been unable to established that certain other member State financing contracts constituted prohibited export subsidies

Business as usual

Airbus is strongly of the opinion that this latest ruling allows it to continue to do business as usual. The European manufacturer “see[s] no significant consequences for Airbus or the European support system from today’s decision”.

It will continue to go to European governments for funding, like it has done for the A350 XWB, to the tune of EUR3.3 billion. Airbus CEO Tom Enders has reportedly stated Airbus will continue to use state partnership in developing its aircraft.

Europe has shown no inclination to change the way it does business, but it is prepared to the resolve the matter through bilateral negotiations. This is an option that Boeing and the US have consistently rejected.

Boeing General Counsel, J Michael Luttig, said “I understand why Airbus and its sponsor governments now want to negotiate. For 40 years they have relied on massive injections of launch aid, which today were confirmed to be illegal. We’re not interested in a settlement that would allow a continuation of illegal launch aid—the most pernicious, market-distorting subsidy of all.”

Airbus’ latest statement on the WTO ruling notes that it “now rejects 90% of all US claims". Paralleling this, Boeing claims that the Mar-2011 WTO ruling on the EU case “dismiss[es] 80% of the EU’s claims”.

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