WTO panel slams EU aid for Airbus

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World Trade Organisation judges gave the European Union a stinging rebuke on Wednesday (30 June), saying the EU must axe prohibited export subsidies to plane-maker Airbus which had injured US rival Boeing.

The WTO panel concluded Airbus had only been able to launch a series of passenger jets thanks to subsidies from the EU and member states Britain, France, Germany and Spain, without which it would be a very different and much weaker company.

The ruling marks a big setback for Airbus, but is not the end of its battle – the world's largest and costliest trade dispute – with Boeing over subsidies in the market for large civil aircraft worth $3 trillion over the next 20 years.

"These subsidies have greatly harmed the United States, including causing Boeing to lose sales and market share. Today's ruling helps level the competitive playing field with Airbus," US Trade Representative Ron Kirk said in a statement.

"President Obama and I are committed to enforcing our trade agreements and, when necessary, using the dispute settlement process that is consistent with the rules-based global trading system at the World Trade Organisation."

The WTO panel found that British, German and Spanish aid to Airbus for its flagship 525-seat A380, the world's largest airliner, amounted to illegal export subsidies and must be corrected within 90 days. Boeing estimated the loans at $4 billion but Airbus declined to provide an estimate.

The WTO found that British, Spanish and German loans for the A380 contained illegal export aid but cleared a French loan.

The European Commission said it would decide shortly whether to appeal the 1,000-page Airbus ruling, and reiterated a call for negotiations, while Airbus stressed the ruling did not mean it would have to return any development aid any time soon.

"The EU remains committed to a negotiated outcome to the dispute with no pre-conditions on either side," EU Trade Commissioner Karel De Gucht said in a statement in Brussels.

The WTO said prohibited subsidies should be halted immediately and said this meant 90 days, but the legal process could mean it will be months or years before this deadline is reached.

Airbus officials said there were grounds for an appeal.

Tanker dispute

Final resolution of the two cases may well shape the civil aviation market, where Airbus and Boeing together have nearly $1 trillion of aircraft on their order books for years to come.

More immediately, it could fuel a row in the United States over one of the biggest defence deals in history.

Both Boeing and Airbus parent EADS are due to submit bids by 9 July for a contract worth up to $50 billion for new tankers for the US Air Force, based on converted passenger jets.

The EADS offering is based on the Airbus A330 – one of the planes found to have been unfairly subsidised – and Boeing is already making much of this, although it remains to be seen to what extent this will sway the Pentagon.

Wednesday's report followed months of leaks and both sides rushed out their interpretations even before the 1,050-page documents were wheeled out on trolleys for reporters in Geneva.

A first confidential report in a countersuit brought by the EU against US support for Boeing is expected on 16 July.

Boeing said the ruling proved that Airbus had only been able to take market share from Boeing – nudging it out of number one place in the process – because of subsidies.

"It has struck at the heart of subsidies for Airbus, held that they are illegal, and must end forthwith," Boeing general counsel J. Michael Luttig told Reuters.

Airbus and France, where the company is based, said the funding system itself, which is based on government loans to be paid back as planes are sold, had not been faulted.

"Neither jobs nor any profits were lost as a result of reimbursable loans to Airbus," the company said.

The case did not cover Airbus's future A350 airliner, but Boeing said the ruling would prevent European governments from paying similar loans to develop that plane. Airbus denied this and said it would press ahead with talks on setting up loans.

Both sides have 30 days to appeal the ruling.

The report – and its 90-day deadline to withdraw the subsidies – does not come into effect until it is officially adopted by the WTO membership, after any appeal process.

(EURACTIV with Reuters.)

Reacting to the ruling, the European Commission found reason for optimism, saying the WTO panel had found that European support "did not result in any job losses in the United States or lost profits to the US aircraft industry".

"The panel has found that the use of Repayable Launch Investment (RLI) as a financing system is fully compatible with WTO rules, as long as the terms of financing are based on market conditions," the Commission said.

But it added that it was "disappointed with certain of the panel's findings, in particular its finding that part of the RLI provided for the A380 aircraft constitutes an export subsidy and that certain infrastructure measures of general nature can be classified as actionable subsidies".

"This final report needs to be read together with the forthcoming interim report on subsidies provided in the US to Boeing. Only then will we have a full and more balanced picture of this dispute. The EU remains committed to a negotiated outcome to the dispute with no pre-conditions on either side," said EU Trade Commissioner Karel De Gucht.

Boeing praised the WTO ruling, hailing it as "a landmark decision and sweeping legal victory" for the US. "Under today's decision, Airbus must repay the $4 billion in illegal launch aid it received for the A380 or restructure the A380's financing to proven commercial terms. Likewise, Airbus must abandon its plans to finance the A350 through the use of illegal subsidies," said Boeing Executive Vice-President and General Counsel J. Michael Luttig.

Airbus claimed a partial victory, saying that "70% of the US claims were rejected" and that "wild allegations have been proven wrong". Airbus stressed that the ruling meant the European reimbursable loan mechanism "is a legal instrument" and that "neither jobs nor any profits were lost as a result of reimbursable loans to Airbus".

Airbus also drew attention to a parallel complaint it filed against Boeing regarding research grants awarded to the US plane manufacturer. Airbus said it expects the WTO to issue the interim report on Boeing subsidies "very soon" and that it expects this WTO dispute "to continue for a few more years".

"As in all other trade conflicts, resolution will finally only be found in trans-Atlantic or even multilateral negotiations," Airbus said.

Robert Sturdy MEP, international trade spokesman for the European Conservatives and Reformists group (ECR) in the European Parliament, said the USA and the EU need to negotiate an agreement that enables both sides to continue operating a public-private partnership for Boeing and Airbus.

"The WTO has recognised that the EU's reimbursable loans to Airbus are within global trade rules, and that these loans caused no material injury to US interests."

"The USA and the EU need to sit down with the major aircraft manufacturers and hammer out a deal without preconditions. We need a clearer system for offering government support which ensures a level playing field for aviation manufacturers."

The EU and the US have been locked in a dispute over state aid to large commercial aircraft builders Airbus and Boeing since Washington and Brussels filed complaints against one another in 2004. 

According to international trade rules, government support for manufacturing is illegal if it can be proved that it harms the companies or industries of another WTO member state. 

Transatlantic tensions had been held at bay by a 1992 bilateral agreement setting limits on aircraft subsidies. But, in October 2004, US authorities announced they were abandoning the pact and filing a formal complaint to the World Trade Organisation (WTO) over Airbus's failure to comply with its terms. 

The bilateral deal allowed the EU to subsidise up to 33% of development costs for new aircraft, in order to help the younger Airbus compete with the more mature Boeing. However, it prohibited support for the actual production of aircraft. 

The US accused the EU of handing out production subsidies and claimed that, in any case, all aid to Airbus should be eliminated as the company had overtaken Boeing in terms of global market share. 

The EU immediately retaliated by filing its own complaint against the US, pointing to "massive" indirect subsidies to Boeing, worth around $20 billion, in the form of military contracts, R&D and tax exemptions. 

Procedures in the WTO were slow to get started as US and EU negotiators struggled – but failed – to reach a deal replacing the 1992 accord on aircraft subsidies. 

The US decided to follow through with its complaint in November 2006 (EURACTIV 16/11/06), in what some saw as a deliberate blow to its rival as it struggled to deal with a series of management upheavals and delivery delays, which finally led to the announcement, in February 2007, of major restructuring plans threatening 10,000 jobs across Europe (EURACTIV 02/03/07). 

[See WTO summary of the dispute here.]

  • 30 July: Deadline for both sides to appeal ruling.

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