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Latest WTO Ruling – Boeing and Airbus are Tilting at Windmills

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Latest WTO Ruling – Boeing and Airbus are Tilting at Windmills

Latest WTO Ruling – Boeing and Airbus are Tilting at Windmills
September 23
11:39 2016

MIAMI — The World Trade Organization (WTO) delivered a blow to European aerospace giant Airbus Thursday, as it ruled that Airbus and the European Union had failed to comply with an earlier 2010 WTO ruling to the tune of $5 billion.

The WTO had previously ruled in 2011 that Airbus had received more than $17 billion in illegal subsidies since its founding, mostly in the form of launch aid. The new $5 billion figure also came in the form of launch aid, upfront loans on non-commercial terms to Airbus, for the A350 program.

The ruling found that the $5 billion granted after the original case was filed, along with the original $17 billion cost Boeing 50 orders in the 787 and 777 segment of large widebodies, 54 in the very large aircraft (VLA) segment, and 71 orders in the narrow body segment.

The World Trade Organization also concluded that the EU had failed to take the necessary steps to unwind its non-compliance since 2011. The EU is expected to appeal this decision: a process that could take several years. But if the EU loses, the US government may well win approval for retaliatory action to the tune of $10 billion which could be applied to EU products from any industry, not just aerospace.

The saga continues – Boeing and Airbus still tilting at windmills


At this point, the warring WTO cases between the US and the EU remain a jumbled mess. Technically speaking, Boeing has also been found guilty of receiving illegal subsidization but for the far lower amount of $5.3 billion. This has led Boeing to claim victory in the matter, but their is an outstanding case over the $8.7 billion in tax breaks that Boeing received from the state of Washington in 2013 in exchange for pledging to manufacture the Boeing 777X in Washington State.

Now there may be an argument that the situations are not exactly analogous. One situation represents tangible cash that was handed to Airbus (the launch aid), while the other is the more nebulous tax break (given that tax breaks tend to be arbitrary and Boeing would have moved the business to another state). Or stated more succinctly, one was about advantaging the manufacturer, while the other was about keeping the manufacturer in the state via domestic competition. The effect was the same, but the intent in “subsidization was completely different.”

But frankly this entire discussion is tired at this point. Both Airbus and Boeing, and actually every aerospace firm in the world is either implicitly or explicitly subsidized by its local government, whether in the form or export credits or in the form of military aviation purposes.

Boeing would not be the firm it was today without the support of the US military (and that’s not necessarily a bad thing), but the net result is that both manufacturers are functionally highly subsidized. And that makes it unlikely that either side will ever win this battle even in a PR sense — there’s too much equivalency to be had.

More pernicious than usual


Conversely, the timing of this WTO case and its size could pose a very real and grave harm to the United States and EU period. While this case has historically played out in a period when the hegemony of free-trade was relatively secure, the current political environment is far more populist and thus threatening to trade than usual.

It is not impossible to imagine a hypothetical President Trump seizing upon this WTO ruling as a launchpad for his anti-trade policy platform. And that would cause very real economic harm on both sides of the Atlantic. WTO cases are usually teethes — this one may turn out to be anything but in the worst possible way.

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About Author

Vinay Bhaskara

Vinay Bhaskara

Senior Business Analyst, Big Airline Enthusiast, Avid Airport Connoisseur, Frequent Flyer, Globetrotter. I Miss Northwest Airlines Every Day. vinay@airwaysmag.com @TheABVinay

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