Sept. 22, 2016: The World Trade Organization (WTO) today found that the European Union not only did not cure its previous finding that Airbus received illegal financing aid in launching the A300 through A380, it further violated rules by obtaining launch aid for the A350 XWB.
The WTO has yet to issue a ruling on an appeal that Boeing failed to comply with the EU’s finding that the US provided illegal subsidies to Boeing. The Wall Street Journal reported yesterday that the WTO is expected to do so.
The EU can appeal the latest finding, which allows the US to impose up to $10bn in sanctions. The US doesn’t have to do so but if it does, it doesn’t even have to be against Airbus–it can be against entirely unrelated industries.
Boeing issued a press statement that was predictable in its tone. It is reproduced below the jump.
Airbus, predictably, has a different spin. Its press release follows Boeing’s.
WTO Confirms EU Failed to Comply with Historic Rulings Against European Subsidies to Airbus, Condemns Additional Launch Aid to A350
– Sept. 22 WTO ruling confirms the EU failed to comply with its obligation to remedy $17 billion in illegal launch aid and other subsidies
– WTO also finds that Airbus received new illegal subsidies for the A350, which are reported to be almost $5 billion
– Ruling sets the stage for the United States to seek up to $10 billion in annual retaliatory tariffs on EU imports
CHICAGO, Sept. 22, 2016 /PRNewswire/ — A World Trade Organization compliance panel today ruled that the European Union has failed to comply with its obligation to remedy the massive subsidies European governments have provided to create and sustain Airbus for more than 40 years.
Rather than comply with their WTO obligations to remedy the $17 billion in past subsidies provided to Airbus, the WTO found that EU Member States provided Airbus with new illegal launch aid – reportedly almost $5 billion – so they could launch the new A350. The WTO was explicit: “[I]t is apparent that the A350 XWB could not have been launched and brought to market in the absence of LA/MSF [Launch Aid].” The WTO previously found that essentially no model of the entire Airbus fleet would exist today – including the A300, A310, A320, A330, A340 and A380 – were it not for the illegal subsidies provided by the European governments.
“Today’s historic ruling finally holds the EU and Airbus to account for their flouting of global trade rules,” said Dennis A. Muilenburg, Boeing chairman, president and CEO. “This long-awaited decision is a victory for fair trade worldwide and for U.S. aerospace workers, in particular. We commend the administration, specifically the Office of the U.S. Trade Representative, and the U.S. Congress for their unwavering commitment to this matter and to enforcing global trade rules,” he said.
“The World Trade Organization has now found that Airbus is and always has been a creature of government and of illegal government subsidy,” said Boeing Executive Vice President and General Counsel J. Michael Luttig. “The day of reckoning for launch aid has finally arrived. Prior WTO rulings found that Airbus itself likely would not even exist without illegal launch aid, equity infusions, and infrastructure support. Today the WTO went further and found that Airbus’ existence continues to depend upon illegal, trade-distorting government subsidies in the form of launch aid, most recently for the A350 XWB – which reportedly totals almost $5 billion,” he said.
Luttig explained that under prior WTO rulings the EU had an obligation to remedy the subsidies for its past airplanes, including the A380. “Instead, the EU compounded the illegal practice by giving Airbus additional launch aid for the A350 XWB. After any appeal of today’s compliance ruling, the next step for the U.S. government is to obtain WTO authorization to impose billions in retaliatory duties. The U.S. government has previously calculated those to be up to $10 billion annually.”
Today’s ruling confirms that Airbus both failed to withdraw old subsidies and instead put in place new subsidies for a grand total of almost $22 billion (principal amounts only). That includes $15 billion in launch aid for each Airbus commercial aircraft program from the A300 through the A380, and $2 billion in non-launch aid subsidies. The WTO also ruled for the first time that Airbus received illegal launch aid for the A350 XWB. News reports put the total for that program at almost $5 billion. Echoing prior rulings, the WTO panel also found that Airbus and its current product line likely would not even exist without launch aid.
“No form of government support compares to launch aid – in terms of amount, nature, or effects,” Luttig said. “Launch aid created entire aircraft programs – indeed, an entire aircraft company – as the WTO found today. This is a type of government support that the WTO has found, over and over again, to be unequaled both in nature and amount, unfair to Boeing and United States workers, and flatly illegal under global trade rules. Today’s ruling confirms that these illegal subsidies will now end.”
Luttig stressed that the final stages of the case against Airbus subsidies are independent of the European cases against the United States and that the EU needs to act now. “The cases are separate and distinct,” he said. “The EU lost this compliance case for the simple reason that it did nothing to remedy its massive subsidies which have had profound effects on the commercial airplane market. Whatever happens in the European cases against the United States, launch aid and other illegal government support for Airbus will now come to an end.”
WTO reconfirms European reimbursable loan system is legal and European compliance close to finalisation
“Once again the WTO has confirmed that Europe’s chosen method of partnering with its large civil aircraft industry is acceptable under international trade law. The public-private partnership model is a winner: a win for state investors who reap rewards in addition to full repayment of loans, and a winner on compliance at the WTO. The US started this dispute claiming Airbus was receiving illegal subsidies, but the WTO decided otherwise. Airbus Reimbursable Launch Investment (RLI) is a legal instrument. The US grants and tax breaks are not.”
“We only needed to make limited changes in European policies and practices to comply with the Appellate Body’s report. We did what we needed to do and did it in the agreed timeframe. We will address the few still remaining points indicated by the report in our appeal. As a point of fact Airbus and its European partners met their obligations to withdraw any subsidy elements or eliminate adverse effects. The only open point is final ruling on the interest rate benchmark for the government loans. We are confident that we will win that point on appeal.”
“The Panel recognises that, not only is the Airbus instrument totally legal, but terms of the A350 agreements are very close to perfect – only tiny tweaks required. What a contrast to Boeing which has laid the biggest egg in subsidy history with what is expected to be the very first finding in any of our cases of a prohibited subsidy for 777x.”
“We congratulate the European Commission on these excellent results and their continued and unwavering support to our industry during this long dispute”.
“This case should not be seen in isolation. There are already decisions condemning Boeing’s abusive and illegal subsidies. So it appears that Boeing and the US continue to litigate mainly to try to justify their own grab for state cash. Even after the ruling in the 787 subsidy case which clearly stated that state grants are illegal, Boeing doubled-down on the same practice with record sums of subsidies, showing a complete disrespect for international trade law. This is not new, the export support received under the Foreign Sales Cooperation (FSC) has been ruled illegal three times by the WTO and the practice continues. So much for the US track record on compliance…”
“And watch this space… before year-end the record subsidies for the 777X will almost certainly be condemned as illegal, in the same way they were already for the 787. But this time around we expect it to be condemned as “prohibited subsidies” where the only option available for Washington State will be to withdraw the measures. Obviously, the US will continue to cynically ignore the WTO.”
“Airbus wants common sense to prevail: these disputes can only end in a balanced, mutual agreement as we have said from the start. It is vital to create a level playing field for all players in this industry with an agreed global set of rules for government support. Whatever Boeing will say, nobody will have to go to the bank. There have never been any repayments and there never will be, it is not in the spirit of WTO.”