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WTO ruling against Airbus is a win for fairness

Post by Kim Bradford on July 1, 2010 at 7:17 pm with No Comments »
July 1, 2010 6:03 pm

This editorial will appear in Friday’s print edition.

The United States took a risk five years ago when it decided to press a trade dispute alleging European Union countries were providing illegal subsidies to Boeing’s rival.

The gamble paid off – at least for now.

The World Trade Organization ruled this week that Airbus benefited from improper government loans made at below-market interest rates.
Without the government support, the panel concluded, the European company would have had to take on massive debt and would have been a “much weaker” company ill positioned to build the A380 superjumbo jet.

The aerospace giant also might not have been able to vault past Boeing in 2003. The illegal subsidies allowed Airbus to offer more models than it might otherwise have, costing Boeing market share in some countries. The WTO found that Boeing suffered substantial lost sales from 2001 to 2006.

“The governments of France, Germany, Spain, and the United Kingdom have caused serious prejudice to the United States’ interests,” the ruling said.

The ruling is a vindication of Boeing supporters, who have long claimed that the launch aid Airbus receives violates the rules of free trade.
But Airbus could have its day yet. The WTO is expected to release a preliminary ruling July 16 on the Europeans’ claim that Boeing’s military contracts and tax breaks also amount to illegal aid.

Many analysts believe that the U.S. will also be found at fault. Some who have studied the latest WTO ruling point to the finding that Airbus’ research and development grants were illegal – an area that might pose problems for Boeing as well.

That makes tying the WTO ruling to the Air Force competition for a $40 billion contract to build aerial refueling tankers, as some in Congress would like to do, a tricky proposition.

Boeing should be able to win that contract without the assist. It might not be able to underbid Airbus on initial price, but Boeing tankers would likely cost less to operate. Airbus detractors have also raised significant concerns about its planes’ operational ability and crew safety capabilities. All those factors are important considerations for the Air Force.

The WTO ruling might prove a bigger advantage to Boeing in the commercial aerospace market, where Airbus is looking to use government loans to compete with the 787 Dreamliner.

The trade panel didn’t rule specifically on Airbus’ development of the A350 since the U.S. complaint was filed prior to its inception.

But the message is that European governments better think twice before disbursing $4.3 billion in pledged loans to Airbus. Such aid was illegal back when the Airbus was developing earlier models, and it is illegal now.

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