Pontifications: Hypocrisy and illegal subsidies at the WTO

Hamilton ATR

By Scott Hamilton

Sept. 26, 2016, © Leeham Co.: There are two airplanes under development that are in the 150-220 passenger space.

Both are under development by companies that get state aid and make no bones about it. The aid would likely be found in violation of World Trade Organization (WTO) rules.

But the most vociferous opponent to illegal subsidies hasn’t said a peep about it.

Neither has the opponent’s rival—although this company publicly recognizes the irony of it all.

I call it hypocrisy.

China and Russia

The two airplanes under development are the COMAC C919 and the Irkut MC-21. These directly challenge the Boeing 737 and Airbus A320 families.

Yet Boeing, which last Thursday crowed about thumping Airbus at the WTO, never filed a complaint about China’s open, multi-billion dollar state support to COMAC, which has open ambitions about becoming the next competitor to Boeing.

Nor has Boeing filed any complaint about Russian aid to Irkut.

(Complaints would actually be filed by the US Trade Representative, but the office won’t act without Boeing’s urging.)

Airbus once did make a meek inquiry with the WTO about COMAC, but it was a low-level inquiry and not a complaint. As far as I know, nothing has been said about Irkut.

But Airbus has said, many times, the dispute between Airbus and Boeing over subsidies is ill-advised because of the can of worms it could open if similar complaints were filed about China in particular and to a lesser extent about Russia.

Boeing’s next competitor

As far back as 2008, during the 58-day strike by IAM 751 (Boeing’s touch-labor union), then CEO Jim McNerney wrote the membership that concessions and give-backs were needed because China would be the next new competitor to Boeing. He also pointed to Russia.

McNerney repeated his prediction about China during the next few years.

If this is the case, then why didn’t Boeing file a complaint about the billions of dollars in state funding of COMAC?

The answer, of course, is that doing so would royally piss off the Chinese government. China is one of Boeing’s largest customers for the 7-Series airplanes.

This is exactly what Airbus told me on several occasions. There was no way Airbus was going to file a complaint about China, for the same reason.

Boeing also has close ties with Russia. There is a Boeing engineering center there. Titanium is sourced from there. Boeing sells airplanes to the Russian airlines (as does Airbus).


COMAC’s C919 probably won’t enter service until 2020, but the company already has greater ambitions. China and Russia signed an agreement to develop the C929, a 250-seat twin-aisle aircraft that faces off against the Airbus A330neo and the Boeing 787.

Yet Boeing says nothing.

Airbus says it’s afraid of a Pandora’s box if a complaint is filed.

You can’t un-ring the bell

None of this addresses the fact that Boeing accepted hundreds of millions of dollars in new tax breaks from Washington State in connection with the 777X program. These are extentions of tax breaks granted by the State in 2003 for the 787–the very tax breaks that were ruled illegal by the WTO in the EU’s counter-complaint against Boeing.

LNC pointed out at the time extending the illegal 787 tax breaks would draw a complaint, and it did. Look for a WTO ruling next year. But the Governor’s Office and State Department of Commerce at the time pooh-poohed the point, saying the ruling was under appeal–neatly disregarding the same argument from Airbus over the WTO ruling about its tax breaks and subsidies.

The Seattle area media, giddy with the news that Washington would assemble the 777X, ignored the entire issue.

Regardless of the illegal subsidies to Airbus (or to Boeing), you can’t un-ring these bells. Talk of sanctions is, in my view, just that. LNC explains why behind today’s paywall.

Long-time readers know that I think the entire matter between Airbus and Boeing has been a big waste of time and money. It’s already gone on for 12 years and there really is no end in sight. The WTO decision on the Boeing appeal comes down next year. The EU is already talking about appealing last week’s decision.

The WTO is a toothless, ineffective organization that has no enforcement powers. A decision eons ago finding Canada and Brazil violated WTO rules in their subsidies to Bombardier and Embraer resulted in exactly nothing.

So will this.

But if Boeing truly was concerned about unfair competition, particularly from a country it repeated identified as its next competitor, it should have the USTR file complaints against China and Russia.

And therein lies the hypocrisy.

46 Comments on “Pontifications: Hypocrisy and illegal subsidies at the WTO

  1. The only conclusion I can come to is that all this nonsense is mainly for domestic consumption or Boeing management has a lot of hard up mates in the lawyering business.
    Apparently Boeing has demanded inferstructure improvements as well as tax breaks. Adjudication on this issue would be impossible.
    I’m not entirely convinced that there’s a a lot wrong with helping your own high tech industries. It’s done great things for Europe and the US has benefitted twice over. The Apple situation with Irelands begger thy neighbour policy is an extreme example of this and the US has shamelessly come out to bat for them. The only real doubt I have is that governments are usually rubbish at this sort of thing. Also if you are buying back shares you shouldn’t really need state loans
    Very strange things going on at Monarch airlines.

    • But you’ll pay for it one way or the other. If the WTO had teeth, we’d be paying for it in increased fares down the line.

      As for Russia and China, state and industry are already intertwined. Especially China which is a full centrally planned economy. It wouldnt make sense to penalise the without admittedly penalising communism itself where all are plastic shit is made.

      China will one day produce big 11 across 3-5-3 passenger freighters that will eclipse A and B at fuel burn / seat. They wont be the elegant A350’s and 787s of this world. They will jam you in to a tight space and an equally tight lavatory. And the airlines will buy them. The C919 is technologically out of date before launch. It desperately needs Chinese subsidies and central control to produce it and have it flown internally around China – its only real market, as the order book shows.

      Theres a much bigger hypocrisy at the heart of this – the notion that free market capitalism can fairly coexist with centrally planned protectionism/communism

      • I doubt it on anyone buying a mucked up aircraft with no support.

        And no communism can’t compete fairly with a capitalist society (as screwed up as we are). They do a pretty good job of stealing stuff though.

        Europe did a pretty good job of letting Airbus make aircraft, but they had a pretty good basis and talent. They had to solve problems not just throw money at it (hats off to them)

        The commies (I include Russia) just throw money at things and they wind up with bad end results, pretty, fast, capable, but in the end they can’t compete.

        • Please do not under estimate capabilities of designers in Russia … at this time they supply unique equipments to reach the ISS for example they also have good and cheap fighters and other weapons etc …

          • Up to a point I don’t disagree with their designers, though I have some reservations after the 747 deb acle (it was subbed out to the Moscow center and they hashed it and had to be re-do0ne in US, in my filed I often here the same thing about the Indian software engineers)

            I do question if Russia has moved from basic to the advanced end, again the MC-21 would seem to say yes at least there (I would love to see behind the pay-wall on that ONE! – hint hint)

            They have had a lot of problems with their advanced fighters, same thing with their whiz bang tank. No stealth, all power and gobs of missiles (supposedly stealth beats that all hollow)

            But you also have to have a good efficient production system and the indusairliation phase is different (AK47 had that issue when moved to mass production as opposed to hand built protoyte). Not at all unusual, the two are not the same.

            And then there is the support, problem response.

            Indai has had huge issues with that lack with Russian equpoemt and you would think the incentive there to correct. They are loosing most of the contracts to Western firms these days.

            What looks cheap when you get it, is useless when its not there when you need it, as much for passenger as military (maybe more so)

            So India is buying AH-64, P-8, C-17, Chinook, Rafael, C-130s.

            If you got your job because you are a good yes man, you are in trouble as an organization

          • They probably make the best fighters in the world today if youre into that.

            Its a pity thay China is the main beneficiary of the embargos against them and their ongoing cold war with the US. Otherwise I think we would have a genuine competitor to A and B coming from there. Instead sadly it will probably be China as Russia has no choicr but to give away their best stuff to them for whatever it is they get from China a convenient resource buyer mainly I guess.

          • “They probably make the best fighters in the world today if youre into that.”

            No they don’t, not even close.
            Their biggest virtue is they are cheap but you get what you pay for.

  2. We went through the same hand wringing when the WTO ruled on Boeings illegal subsidies.
    “The World Trade Organization (WTO) has upheld most of its ruling that Boeing received illegal subsidies from the US government.
    It said the US plane manufacturer, which is the arch-rival of Europe’s Airbus, was given $5bn (£3.2bn, 3.8bn euros) in illegal government subsidies.”

    That was 2012, and they have doubled down on the state kickbacks. We are all shocked , shocked I tell you.
    This article covers WTO disputes on aircraft manufacture from a japanese point of view. Watch out Japan if the MRJ does well !
    The Japanese government decided on their project and selected Mitsubishi to do the work on the MRJ.
    “Approximately 50 billion yen or one-third of the total development cost was financed by the government (Note 3). In addition, a group of municipalities designated as the Special Zone to Create Asia’s No. 1 Aerospace Industrial Cluster, including Aichi prefecture, supported the project in various ways such as helping prepare the manufacturing site and providing subsidies for investment in facilities”

    • Japanese, Brazilian, Canadian and European airliners have a high proportion of US parts.USA, shut if you know what’s good for you. And I’m pretty certain Boeing makes a healthy profit from its Chinese sub contractors.

      • Interesting question. Is there any airframer not getting subsidies? Not a big one anyway. Its ultimately a part of the military industrial complex. And wait til China gets going. Subsidies will become the norm and accepted or else get ready to travel everywhere in Chinese airliners. Won’t that be fun!

        • I doubt that there is any major industrial concern that doesn’t get significant subsidies from electronics to transportation and everything in between. And the difference between illegal and legal subsidies is pretty much all in the eye of the beholder. Every big industrial concern pits various local, state/prefecture, and national governments against each other to squeeze out the biggest subsidies that they can from tax breaks, to loans, to infrastructure, to defense, to direct investment, etc. Even industries as mundane of international sea transport get 10’s to 100’s of billions in subsidies per year.

  3. Hi Scott

    I appreciate your hypocracy argument but in the current world order do you expect either China or Russia to take any notice of such an action. As it stands EU/ USA just peep over the parapet making rude gestures to each other. Based on your previous posts I can’t see the Sino-Russian C929 being either competitive or plentiful in the next 20 years. Critically regardless of what is done externally this project will proceed.

    I still see no reason for either existing OEM to receive state aid beyond very limited repayable launch aid at risk adjusted market rates of return. This simply gives the OEMs access to seed money that may be lacking but is self financing from a governmental perspective.

    • @Sowerbob: Yes, I expect Russia and china will take notice of just how toothless and pointless the WTO and its finds are.

      • Is the WTO a communist conspiracy to destroy the Western Economies?

        Surely we would not do that to ourselves? sigh

  4. lol, I was waiting for the “Boeing’s a hypocrite” piece here after this ruling came out.

    There’s no “moral” underlying cause motivating the Airbus WTO complaint from Boeing, it’s just a tit for tat game between the two. Of course neither wants to totally alienate the single biggest aircraft buyer on the planet; the Communist Chinese government. Though, if one were to look at this from a morality standpoint, the poor chinese workers who don’t have, even today, much of a civil aviation manufacturing sector (due to “other” stuff the communists were focused on from about 1950-1990) “deserve” to benefit from some of the secondary benefits of state subsidizations which, again, in fairness, Boeing benefited from in that time (and later in that period Airbus).

    It’s not particularly hypocritical to have disparate economic (wage), or environmental, or government sponsorship rules in third world countries. That’s certainly what the left, a la al gore/bernie etc., would argue.

    • @texl1049: I never suggested the Airbus complaint about Boeing had a moral motive; you are correct, it was a tit-for-tat. But at least Airbus was open about how China and Russia should be pursued, but won’t because it and Boeing were afraid to.

  5. Scott: Well I know you will be stunned that I agree with you to a large extend.

    I think a couple things can be added to this.

    McNeneary: If you formed integrity into a solid piece of pipe and put it down his throat he would not recognize it.
    If his lips were moving he was lying. So anything he said in reference to China being the next competitor and yada that went with it was just a tool to beat the union over the head with.
    I know its hard to write this stuff and parse it as expertly as I do, so I will forgive you, but you really should have caught that one!

    Airbus vs Japan: Rounding out fairness of a pox on both sides, you can add Japan into the hugely subsidized group that Airbus did not go after though somehow they tried to allude that was Boeings fault for what the Japanese did and do.

    No question Boeing took full advantage of it and waved the significant digit at Airbus while doing so (which I did and do think is funny, aka, dig on this, we dare you to even peeep) , but if hypocrisy is thy name, Japan should be added to Airbuses side of the leger.

    Funny how the bombs go between pretty open governments and not closed ones.

  6. I think we should add into this that Boeing seems serious about the MOM and anything the Chinese and Russians mange to kludge up in the next 20 years is going to be outdated by that time.

    I do not mean the Russian can’t build a pretty good and competitive aircraft, but under dictatorship management its an interfering operation, rife with interference, political decision on equipment (and engines et al).

    The Chinese hate the Russians and want Siberia, the Russians hate the Chinese and just want their money and collaboration (if you can call it that) between the two is going to be fun to watch.

    Comac is throwing Government money at their projects, there is no efficiency in it. C919 was as bad as the 787 at rollout (and I saw the pictures of the crude work on it) Russia I think is doing better, but you know China will own any collaboration.

    What was it, US Airways and American merged and they still can’t get their unions and seniority right? That in spades.

    • I don’t know if anyone in the group has spent any time in Hawaii, I did some years back.

      They would stretch a road project out for 10x what you would find on the mainland.

      The attitude was it was an employment program, not an infrastructure project to get done as soon as possible so you could do the next one. From recent comments from people that have been there and seen the latest, its still the way of life.

      I don’t blame them, Hawaii pretty well sucks for wages, but I can see a Chinese Russian lash up being the same thing.

      Why finish when you will be out of work (Chinese throwing the Russians out as soon as they can) . Russian eeeking it out as long as they can. Chinese throwing money at it.

      And when dictatorships collaborate sooner or later they break up, sometimes violently, winds change, dictators get over thrown, coups occur and so it goes.

      • I agree with most of what u write , most of the time but Asian countries have always been dictatorships in all but name. The 5,000 years of civilization you hear about repeatedly is not republican or democratic in any way, never has been. Democracy as we know it is a relatively young development.

        • Agreed, that’s why I put Japan in an odd category, democratic but also pretty communist leaning in centralized economy direction (though its not working out so well these days)

          Philippines continues to be an ungovernable Train wreck (and a Trump type president these days)

          And its not that China et al can’t produce quality goods, when they do its independent of the Government or a co production with a Western country company setting and enforcing the standards.

          We got an odd speed motor some years back, the guy who put it in was gushing about the great American quality (which tends to be true with motors). I had to bust his bubble, it was made in Taiwan, but the quality was absolutely as good as the parent company put out (Reliance now sucked up by Baldor who is good but not as good as Reliance was)

          It would be interesting to see an in depth of why Airbus worked out.

          Partly it had to be that the integratees all had extensive backgrounds in aviation, production, processes and the good engineers that go with that.

          Enough government support to work and get going but not interference, a rate thing.

          They still struggle with that split issue, GB won’t put money into it unless they get a percentage of the action, though they all look to have made that portion good enough to work.

          Still have the fights with Germany wanting the wing work that at least supposedly has nothing to do with the EU, Airbus being an “independent” company.

          The scattered production can’t do anything to help the economics of it all, maybe offsets some of Boeing advantages though they certainly did an outstanding job of shooting themselves in the foot on the 787.

          Good example of those trade offs, unrestrained capailtims is a bad thing and Boeing has joined that bandwagon.

          The difference between Washington state rolling over and giving them all they wanted with no guarantees

          Whereas Airbus knows it has to give something back or the bucks are not there.

          My take is right now Airbus countries have the better bargain.

    • But China has patience and sooner or later they will learn how to build competitive aircraft and aircraft engines. The government will keep supporting the industry until it is successful on its own. It will be a triumph of State-Corporate Socialism. China will sell Jetliners the world over. Boeing and Airbus will cry, but Europe and North America will do nothing for China will be as economically powerful as the two of them combined by then – and this will translate into a lot of political power that can not be stopped.

      This is the future. When China decides to master an industry, or a science, or build an engineering marvel…it does it. They have proven time and again that they do not blink. They do not quit. They do not fail.

      • Rubbish. They have yet to ‘master’ the art of building a plane of their own design that hasnt been licensed/copied from someone elses hard work
        C919 is meandering along and is largely a copy of the Airbus A320.

        ARJ21 is a development of the licensed production of the DC9, which a new wing design done by Antonov. Its a long history in development and is made in derisory numbers.
        They certainly have the manufacturing know how and talented designers to make a complete airliner from their own resources, but are stuck in the copying mode. The WTO rules mean the massive state aid would be invoked anytime they tried to sell their dated designs in large numbers in the west.

        • China has had problems developing Jetliners and Jet Engines. So what? The companies keep designing and building and the money keeps being given by the Government. Eventually – slowly but surely – China will get it right.

          China is in it for the long haul, so-to-speak. China thinks in terms of decades and on huge scales (like the High-Speed Train System or the New Silk Road or the Chinese Highway System or the AIIB). China does not expect instant progress and they are ready to keep the funding flowing for a very, very long time.

          And the WTO? China doesn’t care about the WTO. It’s just a minor inconvenience that will be dealt with in it’s own time.

          China has big-time money. China has very intelligent people. China has endless patience. China has a very long-term plan. These are the ingredients for success.

          • Dreams are always big …and free. The fact is they cant achieve what Canada and Brazil have achieved in the last 15 years in civil aircraft. Helicopters ? all copies. But then that is their long term plan steal all the IP of others. It must frustrate their talented designers who want to do original work.

          • dukeofurl,

            I heard the same objections back in the 1960’s and 70’s when the Japanese were rising to become a world-class industrial power. Yep…I heard about all those cheap Japanese radios, motorcycles, and cheap Japanese cars…and that all the Japanese could do was copy the work of others – and that the Japanese could never make quality stuff on the level that we did. Wow….were those people ever wrong!

            And now there is China, which is reminiscent of an industrializing Japan on Steroids. China has man-power and wealth the likes of which a a 1960’s-70’s Japan never dreamed….and they’ve got the political influence to match. They are not going to be stopped…they are just too big.

            20 years from now, a lot of people will look back and wonder how they so completely missed the Rise of China. And most likely, a lot of them will think, “Man…if we had just taken those guys more seriously back then”.

          • And where is Japan today?

            Sunk in an economic abyss.

            They may be incrmeting along, fast turnover works in computers, cell phones. I remember when VCR repair went bust, every 3 months there was a maujor board change, you could not keep up with the SAMS (throw it away and get a new one, cheaper)

            However, Aircraft and jet engines are not fast turnover items.

            They are 20 and 30 year items, you can’t afford to throw them away and we have seen how long its taken for the two ground up project (copy up)

            By the time they hit the streets they are badly dated.

            Engines are the same or worse.

            In the meantime Boeing and Airbus, PW, RR and GE are not standing still.

            And if the economic bubble busts as it did with Japan, then that all dries up.

            Not a sure thing at all.

            The world used to go at a slow pace and you could catch up, not so much anymore

          • As opposed to US, Russia ,China, Canada, Brasilia, Europe and Japan hâve NÔ natural ressources
            Only engineers, designers and trained workers
            On thé long run it makes a huge difference although both are quite good at car designing

          • “natural resources” is living on ( and consuming) your heritage.

            While engineering brilliance is a fount that does not dry up with a bit of care as to education.

            IP ( rights and stuff ) is the way of a _resource consumer_ of looking at things and seeing them as limited and unreplenishable.

          • Sorry Jimmy, but Japan had a world class aviation industry at the end of WW2. That by the way is 75 years ago now.
            What Im comparing with is a 15 year period and what Canada and Brasil have done. Yes China has great potential but major civil aircraft isnt one of them. Chinese fanbois saying how great they are isnt producing a complete modern wing from scratch. Even their co production projects are a shambles, the copies of Ukrainian smaller civil turbo props are blacklisted in most western countries as unsafe. Patience is certainly required as their newer copies of larger turbofan transports are 15 year timelines to bring already outdated planes to production.
            It is strange , they should be at least be able to match what Canada can do in less than 15 years but so far there is zero evidence ( The C919 dropped its proposed CF wing) but all we hear is inflated dreams.

          • Japan did quite a lot of license production of German designs. ( Pre war, during the war.)
            No idea what kind of percentage that was relative to their overall activities.
            ( Seen an interesting (animated) movie recently : https://en.wikipedia.org/wiki/The_Wind_Rises rather interesting details.)

  7. With something like the airliner industry there’s simply too much to lose if it moves away from your territory. Thousands and thousands of well paid, highly skilled engineers, etc. with a talent stream going back decades, an enormous knock-on effect on all manner of other industries ranging from engineering to tea shops?

    The national / state strategic implications of losing all that are just too awful to consider; there’s not a politician on the planet who wouldn’t fold if there was any chance of getting away with bunging a few tax breaks / easy loans that way, to make sure it continued. Healthy? Possibly not, but it sure looks healthy from a domestic point of view in the short term.

    I go to Toulouse quite regularly, and it’s abundantly clear that without Airbus (and Arianespace to a lesser extent) that Toulouse would be a desolate barren hinterland.

    If we are doomed to have such shenanigans going on, personally speaking I find the idea of government backed loans as investment in these industries preferable to tax breaks. If the project is successful, the tax payer makes a profit (assuming that the government borrowing is at a rate lower than they’re charging the company, in effect getting the company a loan at near-government rates), and in the meantime the tax revenues are at a normal level. A loan is also a defined amount of money, so the tax payer’s liability is fixed and limited (barring additional loans). Sure, if the project is a failure then the tax payer is carrying the can.

    One example of such a loan is the UK Government’s loan of £340 to Airbus to setup A350 CF wing production in the UK. If they end up getting that money back, then the general boost one gets from vibrant economic activity the UK tax payer is quids in. And, as seems likely in the long run, a profitable A350 program makes the loan a profitable result for the UK tax payer.

    With tax breaks, the tax payer isn’t ever likely to be in profit; all those people working on the project cost just as much in government provided services as anyone else whose employer hasn’t got a tax break. Yet there’s less tax revenue per person coming in to pay for it. And it leaves open opportunities for companies to play tricks with moving “profit” around, so there’s no guarantee that they’ll actually pay any tax in the munificent jurisdiction anyway. Also there’s no particular way in which the amount of money *not* paid to the local government can be realistically quantified, and it’s probably not time limited either.

    Also, playing one state off against another is counter-productive in the long run. The local jurisdiction is a long term partner, a key supplier, providing an educated workforce, infrastructure, etc. If one beggars the local state by driving too hard a bargin on a tax break deal, then one risks finding that the local transport system isn’t up to scratch, that roads are poorly maintained, schools that aren’t quite as good as they could be, etc. All these things can have a dramatic future impact on a company that, above all else, needs good people who can reliably get to work and are content to live in the area because it’s a well set up locality with widespread prosperity.

    As an aside, UK Gov has been moderately wise over such investments over the decades. The rocket launcher / ICBM program Blue Streak was binned (and donated to the French as a bribe to get into the EEC), and instead the Tory government in the early 1980s invested heavily in satellite building at what is now Airbus (previously Astrium, previously….) in Portsmouth and Stevenage. Building satellites has proved to be far more profitable than launching them.

    • You might find it odd that I don’t disagree, but the US is not setup that way and won’t do it, so it occurs at State level and then its the tax issue.

      The caveat though is sooner or latter, Boeing or Airbus (or both!) the management goes off the rails and does dumb projects (A380-747) based on ego.

      Too many of those and down the drain you go (well we know the bailout would come for both)

      At what point does this all become a net drag?

      In Alaska we are told Oil production can’t be taxed at Norway level when oil is high, they will go elsewhere.

      In Alaska we are told oil procuring can’t be taxed at Norway levels when oil is low they will go elsewhere.

      So we reach a point where we actually pay (or have?) aircraft manufacture to make aircraft, or maybe better yet, just pay them like we do farmers to not make anything (probably cheaper!)

      Then let someone like Space X that is hungry, agile, lean (until they too go stale) and does want to do it make the stuff.

      • You are incorrect about Norway and Alaska way of collecting oil revenue. Alaska does it a common way, which is private companies pay to explore for oil at their own expense and risk. If oil is found royalties are paid only when the company has built the whole cost of production itself.
        Norway was different from most western company Statoil, in that it was a government owned business which explored then developed the oil/gas fields that were allocated to Norway in the North Sea. As such there is no separate royalty or tax stream coming from the production. The state owned oil company pays all its profit to the sovereign oil fund which is something like $600 billion now.
        Statoil is also active now in exploration and production outside the original area. Of course it would work in the normal way in other countries paying royalties, taxes to the government which controls the possible oil/gas fields.

        • @dukeofurl

          FWIW, all oil companies that have a license from the Norwegian Government and have operations on the Norwegian continental shelf — Chevron, ConocoPhillips, ExxonMobil, Statoil, Total etc. — have to pay tax at a marginal rate of 78 percent

          The petroleum taxation system is based on the rules for ordinary company taxation and are set out in the Petroleum Taxation Act (Act of 13 June 1975 No. 35 relating to the taxation of subsea petroleum deposits, etc). Because of the extraordinary returns on production of petroleum resources, the oil companies are subject to an additional special tax. The current ordinary company tax rate is 25 %, and the special tax rate is 53 %. The marginal tax rate is 78 %. In 2015, Norway’s tax revenues from petroleum activities were about NOK 104 billion


          Things are different in the US:

          From 2009 through 2013, large U.S.-based oil and gas companies paid far less in federal income taxes than the statutory rate of 35 percent. Thanks to a variety of special tax provisions, these companies were also able to defer payment of a significant portion of the federal taxes they accrued during this period. According to their financial statements, 20 of the largest oil and gas companies reported a total of $133.3 billion in U.S. pre-tax income from 2009 through 2013. These companies reported total federal income taxes during this period of $32.1 billion, giving them a federal effective tax rate (ETR) of 24.0 percent. Special provisions in the U.S. tax code allowed these companies to defer payment of more than half of this tax bill. This group of companies actually paid $15.6 billion in income taxes to the federal
          government during the last five years, equal to 11.7 percent of their U.S. pre-tax income. This measure, the amount of U.S. income tax paid regularly every tax period (i.e. not deferred), is known as the “current” tax rate.


          Here’s more about Statoil:

          Beyond the Resource Curse



          1972 – Government gets a grip

          The Storting (parliament) voted on 14 June to establish Statoil as a state-owned oil company and the Norwegian Petroleum Directorate (NPD) as the industry regulator.

          It also adopted the “10 oil commandments”, which were to form the foundation for future Norwegian oil policy.

          The NPD acquired great authority in matters related to exploration for and exploitation of oil and gas on the NCS. From the start, it has had the very important job of recommending which licences the government should award in these waters.

          Responsibility was also allocated to the NPD for long-term technological and geological analyses required by the authorities to manage the industry as well as the pace of exploration and production from individual fields.

          In addition, the directorate was charged with ensuring that companies with production licences complied with the safety regulations in force at any given time for offshore drilling and production.

          – The 10 oil commandments

          Norway’s politicians appreciated the importance of a national oil policy, and a unanimous Storting adopted the following 10 basic principles in June 1972.

          1. National supervision and control must be ensured for all operations on the NCS.

          2. Petroleum discoveries must be exploited in a way which makes Norway as independent as possible of others for its supplies of crude oil.

          3. New industry will be developed on the basis of petroleum.

          4. The development of an oil industry must take necessary account of existing industrial activities and the protection of nature and the environment.

          5. Flaring of exploitable gas on the NCS must not be accepted except during brief periods of testing.

          6. Petroleum from the NCS must as a general rule be landed in Norway, except in those cases where socio-political considerations dictate a different solution.

          7. The state must become involved at all appropriate levels and contribute to a coordination of Norwegian interests in Norway’s petroleum industry as well as the creation of an integrated oil community which sets its sights both nationally and internationally.

          8. A state oil company will be established which can look after the government’s commercial interests and pursue appropriate collaboration with domestic and foreign oil interests.

          9. A pattern of activities must be selected north of the 62nd parallel which reflects the special socio-political conditions prevailing in that part of the country.

          10. Large Norwegian petroleum discoveries could present new tasks for Norway’s foreign policy.

          National management and control, the build-up of a Norwegian oil community and state participation were important elements in the country’s oil policy during the 1970s.

          The wise choices made at an early stage explain why Norway ranks today as one of the world’s best places to live and a world leader in many areas of the oil industry.

          It was resolved that management and control would be exercised by the Storting, the government, the ministry (initially of industry, later of petroleum and energy) and the NPD. The Storting decides on the opening of new areas of the NCS to petroleum activity, and the government awards licences.

          Exploration activity was concentrated during the 1970s in the area below the 62nd parallel, which marks the northern limit of the North Sea.

          The Storting wanted a moderate pace of exploration and opened the NCS gradually. A limited number of blocks were put on offer in each licensing round.

          Norway’s petroleum industry was initially dominated by foreign companies, which were responsible for developing the first oil and gas fields. Although the government wanted these players to remain, it was also convinced that building up domestic expertise was equally important.

          When Den norske stats oljeselskap a.s (Statoil) was established on 14 June, it was also decided that the state would have a 50 per cent holding in each production licence.

          The Storting subsequently resolved that this proportion could be increased or reduced on the basis of an assessment in each case.

          Statoil’s goal was to become a fully integrated oil company as quickly as possible. It would explore for, produce, transport, process and market oil and gas.

          In addition to Statoil, wholly owned by the state, Norway’s partly state-owned Norsk Hydro and fully private Saga Petroleum companies came to set their stamp on national offshore activities.

      • I guess another difference is that a loan is up front, and can be negotiated to be large enough so as to be immediately useful. A tax break sounds like something that may, in time, save a company a whack of money but it’s not necessarily such a large injection of cash at a single moment when you need it to build a new manufacturing plant.

        A380 is not seen as a success just yet, but it may eventually come good. In comparison to a private investor / lender, a government has more of a license to see out a project over a longer term than originally anticipated. If it ever does, well, then that’s good thing.

          • Not all loss.Concorde was a total loss but the UK and France gained quite a lot of technology. Suppliers benefit and workers pay tax.The A350 is cheaper than the 787 partly because of the money wasted on the A380.There was an election in the 1970s in the UK that was lost because of the effect of British Airways buying a load of 747s and ruining the balance of payments figures. In short, it’s probably worth subsidising aerospace to a surprising degree.
            Better stop there before I turn into a socialist.

          • BOAC had its 747-100s delivered from 1970 onwards. It was never more than 4 or 5 a year. Planes arent paid for till delivered so a handful of planes wouldnt be one way or another on the economic front List price then for BOAC could have been $20million +
            Elections were in 1970, 74 (x2) and 79 The economy was shocking by todays standards, inflation was near 25% on some years and an IMF bailout came in 1976. Only a couple of 747s delivered in the 75-77 years

          • @dukeofurl
            Whether the 747s were responsible or not it’s legendary among political analysts. Back in 1970 any deficit was shocking and the delivery of 2 planes in one month was enough to push it to 0.2%
            I can’t really remember much that far back, but I can remember pushing a trolley around the supermarket by candle light a couple of years later.

      • Transworld, with reference to how the US isn’t set up that way, is that perhaps a symptom of how there’s no-one really in charge of the USA?

        Particularly these past 8 years there’s a Democrat president but a Republican something-or-other, and it seems like not a whole lot of anything has happened during this time (e.g. setting a budget, etc).

        To us outsiders it’s like the USA hasn’t got a government at all, at least not one that can take difficult decisions that will upset a lot of people. The US is clearly fantastic when everyone gets it (e.g. JFK and his going to the moon speech, *that* worked), but strangely paralysed other times.

        For instance, I can imagine that if the Federal government decided it really mattered to get Boeing on a proper operating basis for some new design and made cheap startup investment loans available, then there’d be a whole load of senators and congressmen from other states willing and able to block it. They’d ask, what’s so special about Washington? Result? I suspect that Washington State has to do what it can on its own. Bunging them a large DoD development contract is an extremely inefficient way of achieving the same result.

        In contrast, in most of the rest of the world including the UK, if the government decides that it’s necessary to invest £340million in setting up a CF wing production facility in north Wales, then it happens; absolutely no one else, especially MPs from elsewhere in the UK, nor the WTO (if we squint only a little bit) can stop them doing it.

        Time for the UK to revoke US independence?!?! 😉

        • Political decision making has long been privatized in the US. ( If there ever was a real chance to influence things via voting.)
          Voting, Bread and Games for the marks.

        • Mathew:

          Its a bit of a touigh one to explain (or understand!) but in general, the US Governemtn has stayed out of putting money into private business.

          From the outside that may seem contaaiotry as they did put money into Space X as well as Orbital Scicnet to get freight (and evenau Pax for Space X) to the Space Station.

          They also were involved in the Boeing SST (though that was a selection process)

          Both examples are what I would lable National Prestige Projects, not your usual privaly owned (or stocked driven) company that makes products.

          Thje times they have gotten involved was various disasters, Lockeehd got a lona for 250 million when they went belly up (a lot of defesne systems involved as well as the TriStar)

          Chrysler was givne a loan when they went brankuprt. Again a jobs saving measure. CHrysler could not pay that loan back fast enough.

          Ditto the last meltown when GM and Chryusler got loans (FOrd went antoher direcioon but did benefit fromn the so called reformed union system and relief)

          They are loans, they have bene paid back.

          Its not a partnership sitaiton like Europse has. I can only assume its gotg to do with the Socailist Nature of the economies over there and its not a bad word like it is in the US (with severe grians of sckieis)_

          So while US companies do not want the US govnement in their bussines, they thretend, bait and switch, get them competing with each other for Tax breaks (which do not get repaid, ie the trickle donw economics thing). They used to expire, now they (correct me if I am wrong Scott) on into perptiyty.

          That is best I can put it, its almost cutlrual shissm of how things do or don’t get done.

          It seem to me the European way has far more direct benefit to the people and not as much welfare for the companies.

          US companies can’t operate without it now, so much for Capitalism of course.

          I have begun to think we got the bad end there.

          On the other hand the US oddly is willing to take on th4e Worlds duties to the benefit (overall) of the world (or so I think).

          Nice not having a World War in the last 70 some years.

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