Boeing ‘very confident’ in WTO subsidy battle

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In an interview with EURACTIV, Ted Austell, Boeing’s vice-president of international trade policy, and Robert T. Novick, who represents Boeing in the WTO aircraft subsidy cases, explain why they are confident in the US’ case against the EU regarding subsidies awarded to Airbus, while reassuring that this dispute will not be detrimental to transatlantic relations nor to the WTO as an institution.

Regarding the US submission to the WTO on 15 November, does this mean that there is no longer a chance of reaching a negotiated solution? 

Ted Austell, Boeing’s vice president of international trade policy: There’s always the opportunity to reach a negotiated solution; that opportunity has been before the parties for more than two years now and remains today. The US submission sets the clock ticking and this should focus the parties on whether there’s any prospect for a negotiated settlement before the determination, sometime next fall by the WTO, on the notion that launch aid, as a financing instrument for aircraft development, is not compatible with WTO rules. 

What do you think of Airbus’s intention to seek government aid for the launch of its A350 model which is designed to compete with Boeing’s B787 Dreamliner? Are these planned subsidies included in the US’ complaint? 

Austell:  The prospect of new launch aid for the A350 and consideration that’s going on right now by the enterprise and perhaps by the governments to provide that additional new launch aid would be an unwelcome development and make it that much more difficult for the parties, for the US and the EU, to come to a negotiated solution. 

As for whether this particular filing covers prospective subsidies, we of course believe that absolutely to be the case. What we are hoping is that the enterprise will consider other means, more market-based means, to actually bring that aircraft into the competitive space. 

How confident is Boeing about the US case’s strength? After all, the EU claims that it has already repaid more than it has borrowed in launch aid and that other loans, for example from the EIB, have been made according to standard policy.

Robert T. Novick, chair of the International Trade Department of the legal firm WilmerHale and representative of Boeing in the WTO aircraft subsidy cases: Very confident in the case. It is not true that launch aid has been paid back. In many cases it has been forgiven; in many cases it’s never paid back because the planes that it was provided for end before the repayment period, and; even when it is paid back – which is the critical point – it is paid back on the basis of interest rates that the commercial market would not have accepted for the kind of money that Airbus receives. So paying back a loan at an interest rate that’s not commercial still provides a subsidy. So the defense that “we’re paying it back” does not make it WTO consistent. 

The EU has also filed a complaint at the WTO concerning US government aid to Boeing in the form of in the form of R&D and tax exemptions, which it says has allowed Boeing to engage in aggressive pricing of its aircraft, causing lost sales for and injury to Airbus. A Commission trade spokesman said on 15 November that he was “confident of success”. What is your opinion on this? 

Novick: I find it curious that someone would say that Boeing subsidies – even if they were to exist, which they don’t – have harmed Airbus or caused Airbus lost sales. Airbus has taken 20% in market share over the past five years. They’ve taken market shares in the European market, in the American market and in third-country markets, and the factual basis for the notion that Airbus has lost sales as a result of Boeing subsidies is speculative at best. 

What would an EU victory against the US mean for Boeing? In terms of losses of subsidies and in terms of the EU right to retaliate? 

Novick:  Let me explain first how retaliation works. When a country wins a WTO case, the WTO will have recommended a change of policies that it believes the country should embark on to come into compliance with the WTO ruling. And only if the country does take the actions that the WTO recommends, is there the prospect of retaliation. Retaliation, in turn, is a process by which the winning government can impose duties on products from the other country, to offset the amount of harm that’s been caused and to try to bring the other country into compliance with WTO rules. The government that has the right to retaliate can decide how it chooses to retaliate, usually trying to do so in the way most likely to lead to compliance by the other government. How this will affect an individual company depends completely on how the other government decides to mat out its retaliation. 

In this particular case, the harm caused to Boeing by European subsidies so vastly outstrips and is so significant to that which the EU alleges the US provides to Boeing, that any retaliation would more likely affect Airbus than it would Boeing. You can only retaliate to the extent of the harm that’s been caused to you. But the first step is: can the government come into compliance with the ruling? As to research and development support and US state programmes currently questioned, these could be easily adjusted if the WTO recommended doing so. I think the impact on Boeing would be inconsequential even if the EC prevailed in its case. 

How likely is it that both sides would decide to actually use their right to retaliation and engage in a two-way sanctions battle? 

Novick:  Our hope would be that it doesn’t lead to retaliation. The ideal would be that the issue is resolved before there’s even a WTO decision. If that doesn’t occur, then it would be that countries would come into compliance with the ruling. For example, if the WTO found that launch aid was a WTO-inconsistent subsidy, the only thing that the EC or the Airbus governments would have to do to come into compliance would be to stop providing the money and eliminate outstanding subsidies. Only in the last resort would one want to get into a place where there’s retaliation by the governments. 

Do you believe that this dispute could harm transatlantic trade relations and, on a larger scale, put multilateral trade talks at risk? 

Austell:  Absolutely not. There was an early characterisation that this case, that this issue, was too big. That it would somehow tip over the relationship and that the WTO institution didn’t have the capacity to handle such a complex issue. In fact, just the opposite is the case. This is a fairly narrow case about money and companies and the WTO has been demonstrating all along that it was ready and has the capability to deal with the issue. 

There was even a reference early on that it would tip over the Doha process, but again, it is completely unrelated. The WTO is the best institution, the best process, that we have to deal with problems in trade relationships – that’s what is established to do. I think it’s fair to say that, in a very disciplined way, the process will work. The US and the EU have quite a good history in terms of working out their problems through the WTO. One of the more recent cases was the tax dispute between the two that the EU prevailed upon. The notion that this case is too important, or too big or too complex is false. It is well in the capacity of all to work through the matter. And it is in everyone’s interest to demonstrate to everyone that the WTO process works: that it can resolve disputes and moreover that it can impose solutions not just on the smaller countries, but on the US and the EU. 

Again – this does not negate in any way the opportunity to work through the negotiation in an amicable way. The process encourages that. 

Do you have any forecasts as to the outcome of the Doha Development Round negotiations? Are you pessimistic or optimistic, especially with the looming expiry of the Trade Promotion Authority and following the victory of the Democrats – often portrayed as more “free-trade sceptic” than the Republicans – in the November US mid-term elections? 

Austell:  Of course, our interest is that the Round be concluded. World economic growth drives downstream product demand for both Airbus and Boeing. When there is greater movement of people, goods and services, it means more demand for aircraft. Trade liberalisation in the multilateral system drives that. The Doha Development Round is very important for our and other industries and for the economy as a whole and we are very supportive of bringing the process forward. 

As for future prospects, I would say I’m realistic. Certainly the Trade Promotion Authority is an important instrument for the US, but I think it’s too early to say that the President will not be able to get the TPA next summer. I don’t want to leave the impression that the incoming Congress is anti-trade. In fact there’s been terrific support in the past from both Democrats and Republicans, just as there have been challenges on both sides of the aisle too. 

Novick:  I would just distinguish between the TPA generally and the TPA for a particular purpose. I think there’s a much stronger chance that a TPA to achieve a particular trade agreement – whether it’s a multilateral agreement or an FTA or a regional agreement – has significant chances. And if an agreement comes to the Congress and it looks like it’s a good agreement, they’ll find a way to conclude it. If that means extending the TPA for limited purposes, they’ll do it that way. 

Extending the TPA would have been difficult anyway, whoever dominated the Congress. The question whether there’s going to be something that compels people to move forward on it? If there’s a good multilateral agreement, I don’t have any doubt that the Congress will make sure that it’s passed as agreed; it won’t force them to go back and renegotiate. If there’s not a good agreement, the issue of extension will be a tough political debate. The Congress likes to see what’s to buy first – which makes sense. 

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