WTO panel report is in, Airbus and Boeing both claim victory
The 1,076 page WTO panel report on the US case against subsidies to EADS and Airbus is in, and the outcome is not wholly satisfactory to any party. While US trade representative and Boeing have again come out with claims of a sweeping victory, Airbus too has claimed the WTO panel has rejected the majority of US claims. The EU has been quick to point out that only when the final report on the EU case against US subsidies Boeing has been released will a full and more balanced picture of this dispute be drawn.
A tale of two interpretations: Airbus and Boeing on the WTO ruling
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Issue |
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Overall outcome |
"...sweeping legal victory over the launch aid subsidies that fueled the rise of Airbus and that continue to provide its products a major cost advantage" |
"70% of the US claims were rejected and wild allegations have been proven wrong" |
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"World Trade Organization has now unequivocally declared that government subsidies to Airbus violate WTO rules, are market-distorting, and have caused significant harm to America's aerospace industry and its workers," |
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Launch financing |
"Each and every instance of launch aid that the US challenged was held to be illegal" |
"The European reimbursable loan mechanism is a legal and compliant instrument of partnership between government and industry" |
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“It has struck at the heart of subsidies for Airbus, held that they are illegal, and must end forthwith” |
"Past loans found to contain a certain element of subsidy" |
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"Airbus must now compete on its own, without the assistance of European taxpayers – assistance the US estimates has exceeded USD200 billion in value to Airbus." |
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"WTO rejected all excuses for continuing launch aid, the most pernicious form of subsidy Airbus receives, as well as all other forms of subsidies Airbus and parent EADS use" |
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"European-provided launch aid for the A380 was found to include prohibited export-contingent subsidies, which WTO rules require be withdrawn "without delay." |
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"The WTO's ruling... makes clear that there can be no new government-subsidized financing for Airbus' future A350 model," |
"US allegations regarding A350 funding specifically rejected" |
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Subsidy repayments |
"Airbus must repay the USD4 billion in illegal launch aid it received for the A380 or restructure the A380's financing to proven commercial terms." |
"There is no requirement to repay anything in the WTO process" |
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Harm to US industry |
"Government subsidies to Airbus violate WTO rules, are market-distorting, and have caused significant harm to America's aerospace industry and its workers" |
"Panel rejects US claims that European launch aid and other measures caused “material injury” to US interests" |
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"Panel rejects US claims that European measures caused job losses or lost profits in the US aircraft industry" |
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Aircraft pricing |
“Aid subsidies that fueled the rise of Airbus and that continue to provide its products a major cost advantage" |
"Panel rejects US claim that subsidies allowed Airbus to undercut Boeing’s prices or that EU subsidies had an effect on Boeing’s prices" |
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Research grants |
"A broad array of government funding for Airbus research and infrastructure development violated international trade agreements" |
"Research grants were condemned with important implications for the coming report on US subsidies to Boeing” |
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Action and enforcement |
"Within a year, the US government will have authority to act decisively to ensure compliance if Airbus has not entirely restructured the A380 program so that it is financed and funded on objectively verifiable commercial terms" |
"US request for remedies legally inappropriate" |
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Resolution |
"A successful conclusion to this longstanding dispute is now in sight" |
"Airbus expects this WTO dispute to continue for a few more years. As in all other trade conflicts, resolution will finally only be found in trans-Atlantic or even multilateral negotiations." |
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"Only the availability of the report on the parallel case on Boeing subsidies will bring the necessary balance to allow for a possible start of negotiations, without any preconditions" |
Setting the spin aside, the ruling is highly convoluted and a mixed bag for both sides, but it will mean changes in the way that Airbus is supported by European Governments, and potential adjustments to how Airbus does business. The European Commission expressed its disappointment with certain findings, in particular that part of the reimbursable launch investment (RLI) provided for the A380 aircraft constitutes an export subsidy and that certain infrastructure measures of general nature can be classified as actionable subsidies.
Europe is already looking at recommendations on this issue and is considering an appeal on certain elements. A 30-day period is allowed to lodge an appeal, followed by a 90-day review period, although this could balloon out to considerably longer, given the complexity and size of the case.
If the ruling is upheld on appeal and the EU refuses to stop the prohibited export subsidies the US could request the WTO for permission to impose sanctions on EU goods. Given that outstanding EU case against Boeing subsidies, and the fact that both Airbus and Boeing do massive business in each other’s home markets, this is a situation nobody wants. The EU has made it known that it believes a negotiated settlement on large commercial aircraft is the only way the dispute will end.
The confidential interim report in the EU's countersuit is expected in mid Jul-2010, although the final report may not be released until into 2011. Airbus is determined to push ahead with RLI financing for the A350. If Boeing and the US think they have a case, then round three of the funding dispute may be just around the corner.
The ruling does set an important precedent for the future of large commercial aircraft. According to Boeing, the ruling establishes an “overarching principle governing all those entering aerospace markets: Anyone that wants to use government funding arrangements to develop new, competing products must demonstrate that monies are provided on proven commercial terms”.
The reaction on stock exchanges was relatively muted, with both Boeing and EADS down 0.8% on 30-Jun-2010, after heavy falls the previous day.
Selected Aviation suppliers’ daily share price movements (% change): 30-Jun-2010
Source: Centre for Asia Pacific Aviation & Yahoo! Finance