No immediate effect from WTO ruling
Update, Sept. 6: There is a report out of Germany that the WTO found state loans to Airbus to be acceptable. The conflicting information and enigma goes on.
Update, 2:00pm: The New York Times says 70% of the USTR/Boeing complaint against Airbus was rejected by the WTO. The link is contained in the NY Times reference below in the list of articles.
News Flash, 11:35 AM: Reuters is now quoting EU sources that the WTO didn’t hand the US and Boeing the victories that have been claimed:
WTO did not rule Airbus aid illegal – EU sources
BRUSSELS, Sept 4 (Reuters) – Comments that the World Trade Organisation on Friday backed a U.S. complaint against European Union aid to plane maker Airbus are wrong and misleading, EU sources with knowledge of the WTO ruling said.
“The ruling is not a black-and-white case. It simply is not a great victory for the United States,” one source told Reuters on condition of anonymity.
“The claim that the WTO ruled that subsidies given (by the EU) to Airbus for their A380 plane were illegal is wrong and misleading.”
Reuters reported earlier from Washington, citing a person familiar with the case, that the WTO had ruled that billions of dollars in European loans to help Airbus develop civilian aircraft were an illegal subsidy under world trade rules.
Another EU source said aid given by Brussels to the European plane maker for its A350 aircraft was “not mentioned in the (WTO) report and so would not have to be repaid”.
He was speaking after the WTO issued a pivotal, but highly confidential, ruling on subsidies given by the EU to Airbus that stands to impact the global aircraft sector.
The Hill, Aug. 31: This specialty web publication follows Congress and has this long analysis of the prospect of the WTO ruling on the tanker competition, published in advance of the Sept. 4 report.
Key articles on the WTO dispute:
Reuters, Sept. 3: This one is a good recap of implications, reported in advance of the WTO staff report.
Financial Times, Sept. 3: Another good story in advance of the ruling about the broader implications of the US/Boeing win.
AP via Business Week: This story presents a good analysis on how the WTO ruling could hurt both Airbus and Boeing.
Reuters, Sept. 4: This is a great Fact Box recapping all the issues involved.
Reuters, Sept. 4: Boeing’s Defense unit says the Pentagon will have to decide what, if any, affect the WTO action will have on the tanker competition, according to this Reuters report.
The Economist, Sept. 4: Here’s a European take on the WTO trade dispute.
SkyNews (Europe), Sept. 4: As expected, the UK said it will go forward with plans to loan Airbus more than $500m for the development of the A350.
Bloomberg News, Sept. 4: This report says the WTO did find illegal subsidies were provided on the A380, conflicting with the Reuters report above.
Bloomberg News, Sept. 4: It didn’t take long for a Boeing supporter to tie the WTO report to the KC-X tanker bid. Note on comment on this issue below the jump at the end of our assessment:
U.S. Air Force Tanker Bid Should Consider WTO, Rep. Dicks Says
2009-09-04 19:22:06.212 GMT
By Gopal Ratnam
Sept. 4 (Bloomberg) — The U.S. Air Force must tailor its new refueling tanker bid by considering today’s World Trade Organization’s ruling that Airbus SAS received some illegal subsidies, Representative Norm Dicks, a Democrat from Washington state, said in a statement.
“It would be inconceivable for the Defense Department to issue its request for proposals for the new Air Force refueling tanker without including a provision which recognizes the ruling issued today by the WTO panel,” Dicks said in the statement.
“The U.S. government cannot reward illegal market actions that have harmed U.S. manufacturers.”
The Hill, Sept. 4: This specialty web publication follows Congress and has this long analysis on the possible effect of the WTO report on the tanker competition.
Aviation Week, Sept. 4: Reporter Robert Wall, one of the most insightful aviation journalists, is based in Europe and has this very good report on the WTO conclusions.
New York Times, Sept. 4: The NYT says the WTO found some but not all Airbus aid was illegal and that “most” of the financial aid to Airbus was legal.
Financial Times, Sept. 4: This London-based story has some specificity on the illegal launch aid attributed to the A380.
Reuters, Sept. 4: This article focuses on the affect of the WTO ruling on the pending KC-X tanker competition.
There won’t be any immediate practical affect from the World Trade Organization staff report that Airbus benefited from improper subsidies in the development of its entire line of aircraft. The immediate affect will be political and public relations points.
Merrill Lynch in Europe issued its own opinion ahead of the WTO staff report that concludes the same, entitled “WTO Outcome: Much ado about nothing.” ML issued a Buy on EADS.
The staff report, to be issued Sept. 4, has to be reviewed by the European Union and the US Trade Representative (USTR). Both sides can comment on the report and ask for revisions, a process that could take months. After the staff reviews comments and requests, a new report has to be issued for the WTO to review it, which procedurally could lead to more revisions but in practice has not been the case. Once the WTO endorses the staff report, the decision could be appealed, a process that could add years before a decision becomes effective. Once the decision is effective, the winning party is then able to impose sanctions if the losing party fails to comply with the ruling.
But imposition of sanctions is not a given, and on whom the sanctions are imposed is a bizarre part of the WTO rules. Sanctions do not have to be imposed on the losing party’s affected company–in this case, Airbus. The USA could impose sanctions on the French wine industry or German Bratwurst imports. Likewise, if the EU prevails in its counter-complaint over Boeing subsidies (as expected) in a staff report due within six months, the EU could impose penalties on Washington State apple exports. Or either side could elect not to impose any penalties at all, as was the case in a WTO ruling that Canada and Brazil both violated export subsidy rules in support of Bombardier and Embraer regional jets.
Although the US and Boeing say that this Airbus conclusion means Airbus cannot use launch aid for the A350, the EU and Airbus have already rejected the nexus. France, Germany and the UK are prepared to provide about $5bn in launch aid.
The immediate benefit to the US and Boeing over the WTO staff report on Airbus is that both will have major public relations and political points to promote. Boeing and its Congressional supporters will use the staff report to beat Airbus about the head over A350 launch aid, but since the staff report has no force until ratified by the WTO itself–which, as noted, will be years away due to almost certain procedural appeals–Airbus will go ahead with launch aid. Airbus has also previously told us that any such aid will conform to WTO rules and not be structured under the now-renounced 1992 GATT agreement that governed launch aid from the A300 through the A380.
Boeing and its Congressional supporters will use the staff report to argue, as they did while the case was pending, that the Defense Department should not award the USAF contract for the KC-X aerial tanker replacement for the Boeing KC-135 to a company that acted illegally. Even though Northrop Grumman is the prime contractor with the USAF should the contract be re-awarded to Northrop, the airplane on which the KC-30 is based is the Airbus A330-200, one of those aircraft identified in the US complaint as benefitting from illegal subsidies. As far as Boeing and its supporters are concerned, the name on the side of the KC-30 is Airbus and not Northrop Grumman.
EADS said during the previous competition that all launch aid for the A330-200 has been repaid.
Boeing and its supporters need to be careful about how much they bear down on the tanker issue. When the WTO renders its staff report on the EU complaint over Boeing subsidies, and if as expected Boeing is found in violation of WTO rules, too, Northrop and its supporters can be expected to counter that Boeing behaved illegally as well. Taking this argument to its absurd and illogical conclusion, the only one left building a heavy jet tanker is the Russians, which hasn’t been party to any WTO action on this front.
Talk about sending US jobs overseas….