Leeham News and Analysis
There's more to real news than a news release.
There's more to real news than a news release.
Leeham News and Analysis
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US favors negotiating trade dispute
Crain’s Chicago Business reported yesterday (April 6) that US Trade Rep. Ron Kirk wants to negotiate an end to the EU-US trade dispute over Airbus and Boeing subsidies.
We only just spotted this–there hadn’t been any pick-up by the media that we saw.
The link to the story is here.
But Boeing still says launch aid has to end, a position Airbus continues to resist.
Airbus maintains that launch aid, which it calls Reimbursable Launch Investment (RLI), was in itself not ruled illegal but is permissible under commercial terms and serves to offset what it contends is illegal subsidies to Boeing under DOD and NASA research and development grants.
The Interim Report on the EU case against Boeing is expected to be issued by the WTO in June.
Never too late for negociation 😉
Scott, isn’t it a bit inaccurate to state that Airbus is resisting the elimination of launch aid? After all, it is the governments of the individual countries that decide on launch aid.
I certainly believe Airbus does not wish for launch aid to end, but I don’t believe they have as much influence over that as is portrayed. Other than the jobs card.
A bit pedantic perhaps, but I believe many people see the roles of the individual players incorrectly. Boeing, other than political influence, plays no role in the WTO case, just like Airbus.
Or have I understood this incorrectly?
We met with Airbus the day the WTO final report was issued and Airbus absolutely does not want RLI to end. Whether RLI is advanced is certainly the call of the governments but if Airbus didn’t request it, RLI wouldn’t be offered.
You are correct that technically and legally it is the EU vs US and vice versa but don’t kid yourself: the governments are doing all this at the behest of Boeing and Airbus.
Thanks Scott.
No, I am not that naive. Merely wanted to be certain that I understood everything correctly. I guess I am somewhat pedantic.
I find Mr. Kirk’s comments (about how the Europeans “need to behave more maturely” and how he has “helped them understand”) in the one paragraph to be very interesting. A bit concdescending on one side and a bit hypocritical on the other. Does he harbor the same thoughts about the staid and stable representatives from the state of Boeing, er Washington?
Other than that, I find the comment that a negotiated settlement would be in the best interests of both sides “if the rulings create a more favorable environment.”
Does this imply that the US is preparing for a preliminary ruling that would find against them? Or do they feel they have the advantage to press the EU for a settlement that would be more favourable to the US?
“Boeing still says launch aid has to end”
Does this include the launch aid Boeing benefits from on the wings of the 787?
In what we thought was an incredibly huge omission, the EU (Airbus) did not challenge the Japanese government support of the “Japanese Heavies” involved in the 787 program. The belief is that Airbus did not want to offend Japan in hopes of selling the A380 (and other airplanes) to the Japanese markets, one that Airbus has long had trouble penetrating, but our view is that Airbus really had nothing to lose and should have included the subsidies in the EU complaint.
“The belief is that Airbus did not want to offend Japan…”
The Japanese scheme of government support for R&D may just be hard to attack.
Of course not, don’t be silly. 😉
My guess is that (i) Mr. Kirk has been briefed on the still confidential findings, and (ii) on the forthcoming report of the EU case, and that both of these do not go Boeing’s way. In consequence, US attitudes are now mellowing. Of course, launch AID (below-market RLI) will be abandoned (if it hasn’t been already), and the US and Boeing supporters everywhere will cry ‘victory’! RLI at market rates (which will be determined in an arcane and intransparent way that allows the rate to be whatever the RLI providers want it to be) will continue, and Airbus and the EU will cry ‘Victory’. Long and painful neogtiations will confirm this.
Meanwhile, a dog somewhere in the desert will bark, while the caravan moves on, and life continues.
You read it here first.
So the US has got a ruling from the WTO which partpy upholds their claims and presto, they’re willing to negotiate a settlement.
The fact that the EUvsUS case is still pending naturally has nothing to do with the fact the US is willing to bury the hatchet before the opposing party has their shot…
Might this have something to do with the fact that the basic premise behind RLI was deemed acceptable by the WTO (if it has, we don’t actually know), but the practice of research grants and such from which Boeing benefits has a much lower chance of getting the nod?
Shaggee,
If the US was anticipating a favourable WTO ruling on hte EUvsUS case, wouldn’t they wait for hte ruling and then get what they want?
It never hurts to try to act like the reasonable party in a negotiation. Also, it was EADS that made a call to settle the dispute through negotiations just prior to KC-X draft RfP was released. Ultimately this will be settled by a negation and the US is in a stronger position right now than they will be once the KC-X contract decision is made and the EU case ruling is released. In general if you are going to negotiate it makes sense to do it when you feel your hand is the strongest.
I think it is a little premature to read too much into this thing other than both parties realize that a trade war and sanctions won’t be the result of this case and that it will be settled through negations and both sides called for negations when they thought it would most benefit them. EADS and the EU called for a negotiated settlement just prior to the KC-X contract to hopefully remove the issue from consideration. Now the US has said they want to negotiate after the US vs EU ruling was finalized and they feel the timing is most opportune.
True about negotiating when you feel you have the stronger hand and I do believe the EU will be willing to negotiate right now. I do think the US might be a bit naive if they believe though, that the EU will just roll over. They didn’t do so during the negotiations when the US was threatening to go to the WTO nor did they even after the US launched their case.
I don’t see them doing so now either.
Why would the EU want to negotiate and agree right now, when they have the ruling on their case coming out in three months or so? They’d be stupid to do so. I think the idea that the US is in a strong position now is just wrong. Quite the opposite. Otherwise they would not offer to negotiate. They did not until now. What’s changed in my view is that they can see that they are going to be in a much weaker position in the future. That doesn’t mean they are in a strong position now.
the US position is stronger now than it’s likely to be in a few months/ half a year. Therefore, let’s negotiate. Just like the calls for the same from the EU before the WTO ruling on the USvsEU case came out.
Then again, they’re all diplomats – negotiation is their (only?) forte…