There is been some perplexed reaction to the appeal by the US Trade Representative to the World Trade Organization that the USTR and Boeing claimed only a few months ago were sweeping victories in the complaint that Europe had illegally subsidized Airbus over four decades.
There shouldn’t be any confusion; the answer is simple. Say “A350″ and “A320.”
To be sure, the US won most of the important points it challenged but as Airbus, its parent EADS and the European Union pointed out at the time—and which we reported—the US failed to prevail on the all-important point that launch aid, per se, was illegal.
The US appealed this finding, as well as findings that certain financial aid provided by France for the A380 development was not illegal export subsidies. The US also has appealed this finding.
Here’s what Airbus said Friday in response to the US appeals:
The US has appealed a couple of parts of the WTO’s report, and the appeal reveals some very interesting things that are consistent with what Airbus has said all along.
First of all, the focus of the US appeal is on the findings that reimbursable investments (loans, otherwise known as RLI) are not prohibited. Clearly, the US feels it lost on this point. This is consistent with our assessment (that the US lost on this point), and it is very significant (since the focus of the US case has been the RLI, which we have maintained is a legitimate means of government support).
Secondly, and actually more interesting… the US did not appeal the WTO findings (a) that no US jobs were lost and (b) that there was no price-distorting effect of the European supports. The US clearly has conceded these points, and now that part of the WTO report can be considered final. So, to reiterate, the WTO has found that government loans to Airbus have not resulted in any negative employment or pricing effect vis-à-vis Boeing – and the US has conceded this.
Setting the rhetorical back-and-forth aside, why is it important for the US to appeal the launch aid question?
It’s simple: launch aid may be used for the development of the A350, which threatens Boeing’s 777 series; and the prospective development of a replacement (or even re-engining) of the A320 family. Airbus has already said it plans to use RLI for the A350. It hasn’t said whether it will to re-engine the A320, a cost it estimates at around $1bn but which Boeing thinks could be upwards of $2bn. In the past, Airbus has used RLI for derivative aircraft. A replacement of the A320 family certainly would be a probable candidate for RLI.
Boeing, which is faced with upgrading or replacing the 777 and 737 families to meet the threats of the A350 and A320 NEO, desperately wants to cut off the government funds as a source of liquidity to Airbus. Although RLI now must be on “commercial terms,” (which to us negates the entire point of government money, except in very tight capital markets), Boeing feels that the mere access to the government money gives Airbus an advantage.
Of course, Airbus says Boeing has had plenty of government money since it was founded to support its commercial programs, and Airbus has a solid case on an historical basis. The 307 Stratoliner was a straight-forward derivative of the B-17 bomber, just as the 377 Stratocruiser was from the B-29. The government funded the development of the KC-135 tanker from which the 707 benefitted greatly. Foundational R&D for the 747 came from the government-funded C-5 program for which Boeing was a contender.
From there, the government support for Boeing becomes a bit more ambiguous, and this is the subject of the EU complaint to the WTO about Boeing subsidies. The EU charges that Boeing benefited from improper support via NASA and the Department of Defense for the 767 and 777; and that the 787 “is the most subsidized aircraft in history” with the support of sovereign, US, state and local support. The WTO is supposed to issue the Interim Report on this complaint next month, having delayed it from July 16 just prior to the 787’s international debut at the Farnborough Air Show and after the July 9 deadline for submissions for the KC-X tanker competition.
The EU also appealed the WTO’s Airbus findings, and now with the USTR doing the same, theoretically the WTO appeals panel has 90 days to rule, or about mid-November. But the WTO was supposed to rule in 180 days on the original complaints, and it’s been around six years. Don’t expect answers on the appeals any time soon.