WTO rules Boeing’s state subsidies illegal
In a landmark trade ruling, the World Trade Organization will this afternoon find Boeing has illegally benefitted from billions of dollars from the most anti-competitive type of subsidy.
These so-called “prohibited” subsidies are considered the most serious form of anti-competitive practice as they require an undertaking from the company in receipt of them to promise not to operate in other jurisdictions.
You can have the money if you promise you won’t open plants elsewhere – in this case even in another US state.
This particular subsidy was offered by Washington State – home of Boeing’s vast Everett and Renton plants – and covers the development of its wide bodied 777X aircraft.
Previous examples of this kind of ruling usually require immediate repayment – a sum that by some estimate could approach $9bn, a figure Boeing itself, however, hotly disputes.
Boeing has previously called for an Australian company, found to be in receipt of similar prohibited subsidies, to be forced to immediately repay them, but it’s unlikely it will take such a hard line on itself.
This marks a victory for Airbus in a war without end.
Back in September the European aerospace giant, which employs 15,000 people in the UK, was on the receiving end when it was found that billions of euros in low interest loans amounted to illegal subsidies.
Boeing celebrated that moment as a comprehensive victory which would deal a mortal blow to Airbus and result in more US jobs.
The reality is that neither of these companies can exist without government subsidies.
The development costs of new aircraft are just too big, and the risks and rewards too great, for governments to stay out of it.
Boeing gets money from NASA and the US Department of Defence; Airbus from very, very cheap government loans.
For years this was the case and an uneasy truce reigned over the world aerospace market throughout the 1990s and beyond.
Then, in 2004, all hell broke loose and the lawyers on both sides have been at each others throats for 12 years – a nice little earner for them.
Bury the hatchet?
Could the end of this legal gravy plane be in sight?
It’s not just the US and Europe who are at it.
Canada’s government subsidises Bombardier, and then there is the biggest threat to the Airbus and Boeing duopoly.
It is called Comac, the state-funded Chinese plane maker with the world commercial aviation market its number one target.
Its recent wide bodied aircraft combine features of both the Boeing 777 and Airbus A350 and caught many eyes at a recent airshow in China.
Perhaps this potential common enemy will one day prompt Boeing and Airbus to bury the hatchet.
The world’s longest running and costliest trade dispute does shed some interesting light on the workings of the World Trade Organization.
This is a body the UK may get to know a bit better in the coming months and years if the UK leaves the EU without striking a replacement trade deal.
The big lesson is this: disputes take years, are rarely conclusively settled, and do not take the heat out of international trade disputes.
Airbus is naturally very pleased at the bad news for its rival.
The Airbus comment can be seen in full.
In a quote from it, they say:
This ruling adds to the previous findings by the WTO in 2012 that federal, state, and local governments in the United States are providing huge and WTO-inconsistent subsidies to Boeing (DS353), now mounting up to a total of 26 billion USD of pure grants which Boeing has no plans to repay. “The earlier WTO rulings had already confirmed that B787 was the most highly subsidized aircraft in the history of aviation,” said Fabrice Brégier, Airbus President & CEO. “Today’s report leaves no doubt that Boeing has gone even further. The 777X will not cost Boeing a single dollar to develop thanks to Washington State’s taxpayers. We estimate the damage to Airbus and the European aerospace industry in the region to be $50 billion so far, and that’s only for the 777X. The United States Trade Representative (USTR) should take immediate action. This cannot go on any longer. It is time for the U.S. Trade Representative to insist that Boeing cease its anti-competitive behavior.”
“Unlike the loans to Airbus – the interest rates of which were considered in the WTO dispute against the European Union – Boeing plans no repayment of any kind.”
and there is more detail about how the subsidies work at
WTO rules that EU unfairly subsidises Airbus ($10 bn per year) – but US subsidises Boeing too
The long-running battle over immense state subsidies to aircraft makers Airbus and Boeing has intensified – the World Trade Organization ruled that European governments had failed to comply with rulings that it should cut subsidies to Airbus. Both plane makers have taken complaints to the WTO about subsidies supplied by the other. The WTO is yet to rule on a similar EU complaint that Boeing benefits from billions of dollars in tax breaks in the US. The complaints are because the industries get unfair assistance, are always bailed out, and the success of either one could lead to lower sales (and fewer jobs) for the other. The state subsidies for these two vast companies mean planes are a bit cheaper than they might otherwise be. Airbus said it would appeal the judgment and the EU said it found some of the findings “unsatisfactory”. There may be issues of state subsidies by other plane makers, in countries such as Russia and China, in future. Bombardier has had subsidies from the Canadian government. In June 2011, the WTO found that the EU and four of its member countries provided billions of dollars in subsidised financing to Airbus, and the recent ruling is the final part of that. The EU had argued that the most recent Airbus jet, the A350, fell outside the case, but that was rejected by the WTO which said funding for the jet had been subsidised. The subsidies to plane makers are just one of the many ways in which the aviation sector is helped, making the cost of flying artificially low.