Boeing Airbus Subsidies EU Subsidies

Boeing Airbus Subsidies

EU Subsidies and Soft Loans to Airbus

The EU subsidies to Airbus are not fair, especially not in a modern global economy premised on the principle of free trade and certainly not when undertaken by a group of countries with membership in the World Trade Organization, which prohibits such subsidies. The reason that the WTO prohibits these sorts of government subsidies to private industry is because they distort trade. That is, they tamper with the normal functioning of the market for goods and services, which is here the extremely strategic and high-stakes market for aircraft. They allow one competitor, Airbus, to make its goods artificially affordable to aircraft customers, undercutting truly private firms like Boeing and gaining an unfair advantage in the market.

Europe's history of democratic socialism might allow the EU to frame certain instances of government intervention, such as the nationalization of certain private industries, as traditional features of their political economy. However, the government intervention called for under democratic socialism was directed at distinctly domestic aims such as the inclusion of workers in the management of the economy and the redistribution of wealth.

The government intervention undertaken by the EU here, composed of economic subsidies to a very strategic, export-oriented industry, has little to do with the values or aims of democratic socialism. The subsidies are clearly provided in order to help an infant industry gain an unfair advantage over international competitors which do not receive such government assistance. The subsidies, in fact, are more reminiscent of the state socialism practiced in the former Soviet Union or the mercantilist industrial policies used by Japan, Taiwan, and South Korea in the development of their electronics industries.

US Military Contracts with Boeing: Subsidies or Legitimate Transactions

Military defense contracts between the U.S. government and Boeing do not amount to subsidies as the EU claims (claiming over $23 billion in indirect subsidies) because they involve the government, in return for those funds, receiving a very valuable good or service from Boeing, military aircraft and technology.

The U.S. government is not just giving money to Boeing in order to ensure that it is successful. It provides Boeing with money in exchange for highly sophisticated and expensive-to-produce military technology.

Even the R&D funding given to Boeing is a genuine exchange of benefits between Boeing and the U.S. Department of Defense acting as a market participant. As the nation's leading producer of military aircraft since World War I, Boeing occupies a critical place in the U.S.'s defense establishment. There are many projects which the U.S. defense department must rely on Boeing for, as there are no other private firms or government departments qualified to undertake such projects.

The Future of the European Union's Financial Support for Airbus

It is unlikely that the EU will stop supporting Airbus because there are currently not enough consequences that would arise out of their continued support, even if such support is deemed unfair trade practice by the WTO. The WTO, though a fully functional and respected trade governance body, is very limited in the type of punishments that it can impose on trade offenders and in the type of remedies that it can offer to victims of trade distortion.

In the event that a WTO panel finds a violation of international trade law by one of the EU countries, the WTO could authorize the United States to impose countervailing duties on certain goods entering the U.S. from that country. Such countervailing duties, an act of trade distortion in itself, were commonplace between feuding trade partners before the WTO was created. However, the authorization of the WTO makes such trade distorting measures compliant with free trade practice.

It is certainly in the EU's interest to keep supporting Airbus with financial subsidies because the aircraft industry is a highly strategic industry not only for Europe, but for any industrialized nation. A sophisticated aircraft industry crucial for military power because of the dominance of air power in modern warfare, a situation which is likely to persist into the foreseeable future.

Also, the aircraft industry is perhaps the pinnacle achievement of a highly skilled, high-technology economy with a powerful manufacturing base. The EU, as a coherent political entity, is a rising political power on the world stage. It is expected to provide a much-needed geopolitical counterweight to the United States and China. However, it can only do this if it can establish an aircraft industry and military industrial base large enough to command the attention of the U.S.

The Current Status of the Airbus-Boeing WTO Dispute

In May 18, 2011, the WTO Appellate Body upheld the Panel's finding that certain EU subsidies to Airbus "caused serious prejudice to the interests of the United States."

These subsidies included financing arrangements provided by EU countries for the development of Airbus aircraft, equity infusions from EU countries to companies within the Airbus consortium, infrastructure improvements, and public land use rights. The Appellate Body found that "the effect of the subsidies was to displace exports of Boeing single-aisle and twin-aisle LCA from the European Union, Chinese, and Korean markets and Boeing single-aisle LCA from the Australian market," causing serious prejudice to the interests of the United States. The Appellate Body then upheld the Panel's recommendation to the EU to "take appropriate steps to remove the adverse effects or & #8230; withdraw the subsidy."

Since the May 18 WTO report, the U.S. And EU have been bickering over the implementation of the report, specifically the EU's "appropriate steps to remove the adverse effects or & #8230; withdraw the subsidy" recommended by the Panel. On December 19, 2011, the EU informed the DSB that it had taken appropriate steps to brings its measures into conformity with its WTO obligation. However, the U.S. claimed that the steps taken by the European Union did not bring it into compliance with the Dispute Settlement Body's (DSB) rulings.

On March 30, 2012, the United States requested the establishment of a compliance panel to supervise the EU's implementation of the May 18 report; the panel was created on April 17, 2012. On August 13, 2012, the Chairman of the compliance panel informed the DSB that the panel, after consultations with the parties, had adopted a timetable in which it expected to issue its report in 2013.

At the Dec 19, 2011 implementation meeting, the United States also requested WTO authorization to take specific countermeasures against the EU since the EU had failed to comply with the Panel's recommendations and rulings. The EU objected to the countermeasures requested by the U.S. And the matter was referred to arbitration. As of January 19, 2012, the U.S. And EU requested the appointed Arbitrator to suspend its work for the time being, presumably until the U.S. implements its countermeasures and the DSB is petitioned by either side to make a ruling on the appropriateness of those countermeasures.