All sides claim victory in WTO Airbus ruling

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Trade judges on Wednesday (18 May) partially overturned a ruling that had accused EU states of giving Airbus illegal subsidies, but said the aircraft maker did receive billions of dollars of unfair aid that harmed Boeing.

Upholding a European appeal, World Trade Organisation judges agreed government loans to help Airbus develop the world's largest jetliner, the A380, had not broken a ban on export subsidies, the most severe category of market-distorting aid.

However, US officials said the WTO backed complaints that Europe's aircraft giant had received $18 billion of softer subsidies that still unfairly hit Boeing and its workers.

It gave the European Union six months to withdraw the subsidies or eliminate their effects, US officials said.

The panel ruling still faces formal ratification by the WTO's dispute settlement body.

EU 'pleased', US claims 'definitive victory'

Both sides claimed victory after the WTO issued its latest report in what has become the world's largest trade dispute, affecting over 100,000 aerospace industry jobs.

EU Trade Commissioner Karel De Gucht said he was "particularly pleased" about the report, saying "the US' central claim that Airbus received prohibited export subsidies has been dismissed in its entirety".

"In addition, a number of claims, relating to R&D and infrastructure among others, were either rejected or only partially accepted," De Gucht said in a statement.

Tim Reif, general counsel for the US Trade Representative's office, said the report "confirms [that] for decades the European Union and its member states, France, Germany, Spain and the United Kingdom, have provided massive amounts of market-distorting launch aid and other subsidies that are inconsistent with WTO rules".

The United States lost on some issues in the appeal, Reif said. But he added that on the whole "we're enormously pleased with these findings."

A350 and 787 Dreamliner now the centre of attention

However, the two trade superpowers quickly clashed on what the report would mean for the next generation of Airbus aircraft, the Airbus A350, which is being developed to compete with Boeing's 787 Dreamliner.

There have been fears in the aerospace industry that friction over the way the A350 is developed could worsen the dispute.

The United States wants the countries that founded Airbus 40 years ago – Britain, France, Germany and Spain – to refrain from giving further development loans, saying these have been revealed as unfair even after the setback on exports.

It says Airbus, whose parent EADS boasts a $17 billion cash pile, can easily afford to pay its own way.

Airbus Chief Executive Tom Enders said Airbus could and would continue to partner with governments to build its planes, a clear signal that it will press on with efforts to negotiate A350 government loans which analysts estimate at $5 billion.

"We now can and will continue this kind of partnership on future development programmes," Enders said in a statement.

Although it failed to ensure the ruling applied to the A350 in advance by establishing a blanket WTO ban on such loans, Washington believes the trade body's criticism of every previous example of loans to Airbus sets an overwhelming precedent.

"We expect the European Union and the Airbus governments to refrain from future launch aid disbursements," said Reif, general counsel for the US Trade Representative's office.

Lengthy process

The ruling will be closely scrutinised by countries bidding to enter the passenger jet market to compete with Airbus and Boeing, including China, Russia, Brazil, Canada and Japan.

"This is good news for other countries that want to expand their market share," said Daniel Griswold, director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute, an independent think-tank in Washington.

In March, a separate WTO panel criticised $5 billion of US payments to Boeing, including some already covered by an earlier trade dispute. Both sides have appealed the verdict, which the US says is dwarfed by aid to Airbus.

Trade analysts say it could be years before WTO processes are exhausted and the cases could lead to any trade sanctions.

Many say few if any subsidies are likely to be paid back and neither side is seen anxious to pull the trigger on a trade war.

"We are ready to come to the table, but we certainly wouldn't accept any preconditions," said an EU official. "The ball is with the US side."

Reif said the case demonstrated that President Barack Obama was determined to defend Washington's trade interests.

Concluding their 645-page report, WTO judges voiced some frustration that the dispute – which one person in the case believes to have cost over $100 million – remains unresolved.

"We realise that after five years of panel proceedings and almost 10 months of appellate review, there are a number of issues that remain unresolved in this dispute. Some may consider that this is not an entirely satisfactory outcome."

(EURACTIV with Reuters.)

Positions

The European Commission welcomed the WTO Appellate Body Report, saying it has "overturned several key findings made by the panel".

"Most importantly, the Appellate Body found that support provided by Germany, Spain and the UK for the launch of Airbus' A380 aircraft is not a prohibited export subsidy under WTO Law. It also rejected the US appeal that other instances of Repayable Launch Investment (RLI) were export subsidies."

EU Trade Commissioner Karel De Gucht said: "I am particularly pleased with this important result. The US' central claim that Airbus received prohibited export subsidies has been dismissed in its entirety. In addition, a number of claims, relating to R&D and infrastructure among others, were either rejected or only partially accepted."

In a statement, Boeing said the WTO report was "a clear final win" for fair trade and US workers.

"This is a clear, final win for fair trade that will level the playing field for America's aerospace workers," said Jim McNerney, Boeing chairman, president and chief executive officer. "The WTO has concluded that launch aid and other illegal Airbus subsidies distorted the market, harmed US industry and now must end."

"Airbus and its government sponsors have tried to justify their illegal subsidy practices by claiming that Boeing benefitted equally from government R&D contracts," Luttig said. "But the WTO in March categorically rejected that argument, dismissing 80% of the EU's claims against the United States and confirming the huge competitive advantage Airbus has as a result of massive illegal government subsidies."

For its part, Airbus described the ruling as a "decisive victory for Europe". In a statement, the European manufacturer said the WTO report "constitutes the final blow to the Boeing-sponsored myth that government support to Airbus somehow caused harm to Boeing".

"The WTO has now confirmed definitively that government loans are a legal instrument and that none of the government loans made to Airbus over the past 40 years were prohibited. It also reaffirms that, contrary to Boeing's repeated assertions, the subsidies did not cause any material injury to Boeing."

Background

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 proven to harm the companies or industries of another World Trade Organisation (WTO) member state. 

In summer 2010, a WTO panel issued a ruling on the suit brought by the US against the EU over Airbus subsidies.

Click here for WTO summary of the complaint by the EU against the United States and the complaint by the United States against the EU.

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