A victory for Boeing
A World Trade Organization panel’s finding that the European aviation company Airbus had benefited from years of unfair subsidies is, on its surface, a victory for Boeing and the United States in their six-year quest to force Airbus to compete on a level playing field. Yet it also lays the groundwork for an important precedent that could ultimately help both firms in future disputes against new state-subsidized competitors.
The trade body focused on the support that Airbus has received from European governments to help develop and launch virtually all of its large civilian airplane models. The complex, 1,076-page ruling by the WTO dispute-resolution panel wasn’t a slam dunk for either side, leading Airbus to contend that 70% of the United States’ claims were rejected. Nevertheless, the overall thrust of the decision was unmistakable: Some $20 billion in low-interest loans that Airbus received were, in fact, impermissible subsidies, and as a consequence Boeing lost sales around the world.
Although the panel called on France, Germany, Spain and Britain to withdraw the offending subsidies within 90 days, it may take years for the WTO to reach a final decision and come up with a way to enforce it. Complicating matters is Europe’s WTO complaint against subsidies allegedly given to Boeing by the U.S. government (in the form of research contracts from NASA and the Defense Department) and the state of Washington (in the form of tax breaks). This aid, which Boeing defends, effectively allowed Boeing to shift some of its costs onto the government.
The issues raised by both cases are important, and together they should help clarify what governments can and cannot do to support the aviation industry. Tougher limits on subsidies would assist both Boeing and Airbus — they can raise capital relatively cheaply to develop new products without taxpayers’ help, while their competitors in developing nations are more likely to depend on governmental subsidies. That’s no guarantee that China and other developing countries will heed the WTO, but it’s a start.
Meanwhile, Boeing and Airbus’ parent company are battling fiercely over a $40-billion military contract to build replacements for the aging U.S. fleet of in-flight refueling tankers. The Air Force has said it won’t take into account the WTO findings, but Congress undoubtedly will. And it should, although the subsidies issue shouldn’t be the deciding factor. As Airbus has noted, both sides’ development costs have been underwritten to some extent by their governments. It’s important for these companies’ bids to be measured by a fair yardstick. Still, the main issues should be the value that the Pentagon and U.S. taxpayers receive for their money, and how much their investment helps the U.S. industrial base.