| By Madhu Unnikrishnan Aviation Week
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A Cambodian proverb holds that when elephants fight, the ants suffer (Damrei Chol Knea Ngorb Sro-Morch). But there is a real danger of that wisdom being turned on its head as the U.S. and European Union spar in the World Trade Organization (WTO) over subsidies for large commercial aircraft.
In their zeal to win, could Boeing and Airbus be teaching emerging rivals how to craft state subsidies — and inadvertently speed the end of their own duopoly?
A pair of cases has raged in the WTO since 2004, when the U.S. brought a complaint against the EU alleging that Airbus benefited from more than $20 billion in “illegal” state aid for the development of the A380 and other aircraft. The U.S. government’s case claims Boeing’s market lead over Airbus had all but vanished by 2000, making European subsidies unnecessary and potentially illegal.
The WTO’s “final” report on the U.S. case is expected June 30, but the debate will be far from settled. A pending EU counter-claim alleges that Boeing has leveraged research grants from NASA and the U.S. Defense Department to benefit its commercial aircraft programs. Additionally, state and local tax incentives and credits constitute a separate stream of illegal subsidies, according to the EU. In total, the EU claims Boeing received — what a coincidence — more than $20 billion in illegal subsidies. The WTO’s interim report in the European case is expected by mid-July and should signal the flavor of a final report that will be released 6-8 months later.
Even then, the two sides could be locked in appeals and arbitration for years. Or the two governments could at any point opt to negotiate a settlement. And if the WTO rules that a fine is appropriate, the levy need not be applied to aerospace exports. That means business as usual at Boeing and Airbus is unlikely to change in the near term. The EU is not about to cancel launch aid for Airbus’s new A350, and Boeing is unlikely to refuse tax credits from state and local governments. “It’s very difficult to get companies to change behaviors,” says Richard Aboulafia, a Teal Group analyst.
Both sides already are claiming victory. But the real winners may not be based in either Chicago and Seattle or Toulouse and Hamburg. Instead, they might be aircraft builders in Canada, Brazil, Japan or China. The WTO cases may well serve to instruct the Airbus’s and Boeing’s next generation of rivals how to structure state aid — or how not to — so it complies with international trade agreements. “These cases will give someone — maybe the Japanese or the Chinese — some traction,” says William Swelbar, an economist in the Massachusetts Institute of Technology’s Aeronautics and Astronautics Department.
In a capital-intensive and risky endeavor such as developing a commercial aircraft program, knowing how to legally tap the rich vein of government funds could be the most important lesson of all.
Photo credit: Northrop Grumman
In their zeal to win, could Boeing and Airbus be teaching emerging rivals how to craft state subsidies — and inadvertently speed the end of their own duopoly?
A pair of cases has raged in the WTO since 2004, when the U.S. brought a complaint against the EU alleging that Airbus benefited from more than $20 billion in “illegal” state aid for the development of the A380 and other aircraft. The U.S. government’s case claims Boeing’s market lead over Airbus had all but vanished by 2000, making European subsidies unnecessary and potentially illegal.
The WTO’s “final” report on the U.S. case is expected June 30, but the debate will be far from settled. A pending EU counter-claim alleges that Boeing has leveraged research grants from NASA and the U.S. Defense Department to benefit its commercial aircraft programs. Additionally, state and local tax incentives and credits constitute a separate stream of illegal subsidies, according to the EU. In total, the EU claims Boeing received — what a coincidence — more than $20 billion in illegal subsidies. The WTO’s interim report in the European case is expected by mid-July and should signal the flavor of a final report that will be released 6-8 months later.
Even then, the two sides could be locked in appeals and arbitration for years. Or the two governments could at any point opt to negotiate a settlement. And if the WTO rules that a fine is appropriate, the levy need not be applied to aerospace exports. That means business as usual at Boeing and Airbus is unlikely to change in the near term. The EU is not about to cancel launch aid for Airbus’s new A350, and Boeing is unlikely to refuse tax credits from state and local governments. “It’s very difficult to get companies to change behaviors,” says Richard Aboulafia, a Teal Group analyst.
Both sides already are claiming victory. But the real winners may not be based in either Chicago and Seattle or Toulouse and Hamburg. Instead, they might be aircraft builders in Canada, Brazil, Japan or China. The WTO cases may well serve to instruct the Airbus’s and Boeing’s next generation of rivals how to structure state aid — or how not to — so it complies with international trade agreements. “These cases will give someone — maybe the Japanese or the Chinese — some traction,” says William Swelbar, an economist in the Massachusetts Institute of Technology’s Aeronautics and Astronautics Department.
In a capital-intensive and risky endeavor such as developing a commercial aircraft program, knowing how to legally tap the rich vein of government funds could be the most important lesson of all.
Photo credit: Northrop Grumman
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