WTO near decisions on Airbus, Boeing compliance

Reuters reports that the World Trade Organization (WTO) is nearing decisions on whether Airbus and Boeing complied with previous rulings to fix subsidies the WTO found were illegal in the production of their commercial airliners.

In the meantime, the United Kingdom’s Serious Fraud Office (SFO) investigation into improper use of consultants by Airbus appears to be spreading to the US Department of Justice, according to press reports.

The website AL.com (for Alabama) his this report, focusing on the potential impact to the Airbus’ presence in Mobile (AL). AL.com referred to an original report in The Times of London.

Boeing is not without its own problems. The Us Securities and Exchange Commission is said to be probing alleged improprieties in its use of program accounting for the 787 and 747-8. Program accounting is an approved method of cost accounting. The reported SEC probe is looking into whether Boeing improperly applied costs in the two aircraft programs.

Background on the complaints

The Airbus and Boeing complaints to the WTO (officially these are complaints by the US Trade Representative about Airbus and the European Union about Boeing) date to 2004. Boeing complained that Airbus received tens of billions of dollars in illegal subsidies from its member states. The WTO agreed on many of Boeing’s complaints. Both sides argued just how many complaints were upheld and how many were dismissed.

Airbus subsequently filed a counter-complaint about Boeing’s “subsidies.” The WTO upheld some complaints and rejected some. As with the Boeing complaint, both sides argued over the outcome.

The EU appealed the WTO’s ruling. Although former Boeing CEO Jim McNerney said at one point Boeing would repay the subsidies if the WTO found any to be illegal, it did not. Instead, the USTR appealed.

Now both sides complained the other isn’t in compliance with the WTO rulings. Airbus said it complied, and that new “launch aid” for the A350 XWB was structured to comply. Boeing (the USTR) didn’t file a complaint about this launch aid (as far as we know).

777X breaks based on illegal ones for 787

Airbus (the EU) complained that Washington State’s tax breaks extended for the 777X were illegal. These $8.7bn in tax breaks were an extension of $3.2bn in tax breaks provided in 2003 for the 787 program, which were found to have illegal elements. At the time of the 777X tax breaks, LNC complained that the State was using illegal tax breaks for the 777X. State officials fell back on the appeal of the WTO decision as cover.

Penalties

Both sides are awaiting WTO rulings that could lead to authorization for the US and the EU to impose penalties for non-compliance. If authorized, the governments don’t have to impose penalties on Airbus and Boeing. Under WTO rules, penalties may be imposed on unrelated industries. Thus, theoretically the US could levy penalties on French wine and the Europeans could levy penalties on Washington State apples.

It’s a bizarre set of rules that allows innocent third parties to suffer.

6 Comments on “WTO near decisions on Airbus, Boeing compliance

  1. I seem to have heard once that the US has been found to be non-compliant before, years ago. I think it was the farmers who suffered the consequences? Anybody remember?
    Tax breaks for Boeing make sense for Washington state, or they would have if they had been well structured, because Washington state won’t necessarily bear the consequences.

    • Yes and I don’t know if that one was settled.

      As noted, the bizzare thing is that the mfg involved do not suffer, its someone else.

      And tax breaks do not make sense, it begins a play off thing that Boeing now uses to play states off against each other (or any other mfg doing the same thing)

      The whole thing is a mess.

      Mfgs used to start business and build them where they thought it was best, not on who can undercut who for what.

      • Well, that is the idea, but the states do change things (raise taxes from time to time). Can anybody remember what was the tax rate that Boeing paid to Washington State back in the sixties and seventies?

        • Washington state has no personal or corporate income tax. Its one of only 7 states. It does have a state sales tax and it does have whats called the B&O income tax for companies

          The Business and Occupations tax is based on gross revenue so Im sure thats the one Boeing wriggles out from paying.
          the tax rate is 0.002904 for Manufacturing of Commercial Airplanes, Components, or Aerospace Tooling

          “Boeing saved $305 million in state taxes last year[2015], thanks to Washington’s suite of aerospace tax incentives granted by lawmakers to keep the company building jets here.”
          http://www.seattletimes.com/seattle-news/politics/boeing-saved-305-million-last-year-from-state-tax-breaks/

  2. Seems the US thru its intelligence operations is after uncontrolled Commissions (smelling like bribes) in Commercial Aerospace and has nailed both Airbus and Embraer. (Military sales are off the chart as it is a mix Politics, Power, Money and bribes. Just look at the UK SFO getting orders not to touch it some years ago)

    • Yes . Military sales are untouchable. Just wait for the fallout from Indias buy of P-8 Poseidons in years to come , if ever

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