Pontifications: Boeing case against Airbus at WTO: appeal decision due this month

By Scott Hamilton

May 7, 2018, © Leeham News: The World Trade Organization resumes action in the European Union appeal of an adverse ruling in the Airbus illegal subsidies case filed by the US years ago, at Boeing’s behest.

This column appears at the start of the business day in Europe, before the WTO opens its hearing today. By the time the US wakes up in New York for business, today’s hearing will be over. The WTO announced today’s hearing a week ago and initially a decision on the appeal was expected, but it may not come until later this week or next.

Based on history, the WTO will probably affirm earlier decisions that Airbus benefited from illegal subsidies and hasn’t yet cured the violations (ie, repaid the subsidies). Just how sweeping this will be is a matter of speculation.

Throughout the long-running dispute, now in its 14th year, Airbus has been on the losing end of the US complaint at least on some level. The European company has won on some issues and lost on others, but the WTO found that Airbus received subsidies from EU states that violate WTO rules.

The spin from Airbus and Boeing will be along historically predictable lines.

Same old songs

Airbus will say any loss isn’t so bad and just wait until the Boeing case comes down in a few months. Boeing will hysterically declare total victory, call Airbus the devil incarnate and demand crushing tariffs.

The spin is tiresome.

All along, Airbus claimed its EU member state support merely offset the US federal and state subsidies or research and development support received by Boeing.

Yes and no.

The WTO did find Boeing received support illegal under WTO rules, but the amounts were always in dispute. Boeing claimed Airbus benefited from $25bn in illegal aid, a figure Airbus called absurd. In the counter-complaint, Boeing received $3bn-$4bn in illegal aid, Boeing said. Airbus claimed the 787 was the most subsidized airplane in history (until the 777X, a separate case).

Boeing more effectively conveyed the messaging than Airbus throughout the complaints.

But Boeing’s claim that launch aid was illegal, the underlying thrust of the US complaint, proved not to be the case. How launch aid was implemented, at below-market rates for fees and interest, violated WTO rules, but launch aid itself was not.

Nevertheless, Boeing continued its refrain that Airbus launch aid is illegal.

After the US filed its complaint, the EU filed one of its own. The WTO found Boeing violations and, like Airbus (the EU), Boeing (the US) appealed. This appeal decision is due later this year.

In every previous adverse decision, Airbus’ spin was “just wait until the Boeing decision comes down. It will be worse.”

History doesn’t support that the decisions were “worse,” except in one instance, the 777X, which was overturned on appeal.

Hysterics and hypocrisy

Boeing’s reaction to the anticipated ruling is going to be entirely predictable. It’s press release and spin will be along the lines of defeating the enemy in a World War.

It will demand total surrender and penalties for Airbus’ war crimes. As in the past, Boeing will demand tariffs. With Donald Trump in the White House, his war on unfair trade coupled with tariffs declarations, and Boeing CEO Dennis Muilenburg having become Trump’s biggest booster in US industry, you can bet Boeing will press Trump to impose tariffs on Airbus airplanes.

Boeing should know better on the hysterics. History in this case, and the one against Bombardier’s C Series, simply embarrassed Boeing’s hyperbole and hurt its credibility. But Boeing never blinked on the messaging and it’s been shameless throughout.

Boeing’s hypocrisy has also been clear throughout and no doubt will be in this case.

If Boeing were truly concerned about government support for aircraft programs, it should have persuaded the US to file trade complaints against Russia and China for their airplane programs.

The Irkut MC-21 and COMAC C919, which compete directly with the 737, are government programs, pure-and-simple. But nary a peep from Boeing on these subsidized efforts.

(Airbus hasn’t filed complaints, either, but it never wanted a WTO fight in the first place. The EU complaint against Boeing was purely retaliatory. Airbus, however, unlike Boeing, has called for new bilateral agreements on government subsidies for the US, Europe, China, Russia, Japan, Canada and Brazil.)

The outcome

The Airbus case is ending this month. The Boeing case should come to a close by the end of the year.

It’s about time. It’s long overdue.

The only remaining question is, what will have been achieved?

30 Comments on “Pontifications: Boeing case against Airbus at WTO: appeal decision due this month

  1. I believe the original Boeing plaint against Airbus was tactical, to make it more difficult to produce a competitor product to the 787. This plane was massively subsidized, largely by Japan. Nevertheless Boeing people genuinely believed Airbus was getting an unfair advantage.

    14 years later the tactic hasn’t worked and everyone knows Boeing is at least as much subsidized as Airbus.

  2. I get the impression that this plays very well with a large proportion of Americans who don’t necessarily take a close interest in the subject. Ask a yank,am I right Scott and others?
    You have got to admire Boeing’s stamina as this is all extremely boring and expensive.

    • @Grubbie: Probably 99.99% of Americans have no clue about this dispute.

  3. Meanwhile, in another WTO case ….

    “GENEVA/BRASILIA (Reuters) – Brazil has secured World Trade Organization backing to press its claims against Canada in a dispute over what it says are unfair subsidies for Bombardier Inc’s (BBDb.TO) CSeries jets, a preliminary WTO ruling published on Tuesday showed.

    The case plays into a decades-long dispute between Bombardier and its main rival, Brazil’s Embraer SA (EMBR3.SA), which gained higher profile after European heavyweight Airbus SE (AIR.PA) agreed to take a majority stake in the Canadian plane program.”

    See the link below for the full 4-17-18 Reuters story.

    https://www.reuters.com/article/us-brazil-canada-wto/brazil-secures-wto-backing-in-dispute-with-canadas-bombardier-idUSKBN1HO1OT

    • On the subject of Embraer,check out vidio of hilarious attempt to hide KC390 following it’s excursion/crash (defence industry daily).All but confirms that there’s more to the problem than a simple misjudgement.

      • Ahh, see it was not an excursion.

        They are just testing out the soft field capabilities of the aircraft! You just have to know how to spin the fan the right way of course.

        Still scratching my head on how you manage to excursion off a 16,000 foot runway?

        • Hercules just seem to drop out of sky rather than plough through some fences

          • Reading airliners. com,it seems that the KC390 stall test incident was a nats nadger away from the same thing.

          • Not to mention said C-130 was on its way to the boneyard.

            Maybe the KC390 should have 64 years of ops under its belt before it does funky things?

  4. “mist” subsidized airplane

    You got a typo there.

    • @Rick: Well, this case always has been foggy.

      Word and WordPress spell check once again prove to be inadequate.

      Fixed, thanks.

      • Funny thing is that “mist” in German is “manure”.

        • Thank you, that is going to come in handy at work.

          My German class didn’t cover that (pardon the pun)

  5. I used to think Boeing had a point, and Airbus at the time was the only offender.

    At this point with the bait and switch and holding hostage to various places for tax breaks, not at all.

    Most people don’t care about the legal nuances.

    A lot like gun debates, well its not an Assault Riffle its a semi automatic and AR standar54 for Armalite.

    Yawn. 70% (assuming that is not alternative facts) don’t own guns could care less. It looks like an M16/M4 and it shoots fast.

    So, all that nuance means you loose the discussion. No one care that you have to hook up an AC brush-less generator field one way and wreck it the others. (DC yes, and needed to swap)

    Does that dang thing put out power? If not whats the problem and why did it get that way (Puerto Rico)

    FedEx and UPS try to kill DHL because its a part of the German government.

    Delta wants Emirates to pay (hire their pilots away and put them AOG?)

    So it goes, but expecting a corporation to have any integrity as we know it?

    That is for the peasants and the cowering workers. And they dang well out to earn their way and not get all those subsidies we do.

    So Boeing was public Trump before Trump got to be so public. Birds of a feather?

  6. This issue is very simple. Illegal government subsidization. AIRBUS wouldn’t exist without it. Boeing has been asking the WTO for a fair shake for 14 years with European stonewalling and total disrespect for true legal trade practices. The USA has every right to charge major tariffs on other goods and services to recover billions of illegal subsidies from AIRBUS illegal trade. Airbus should lose this trade dispute. It’s the right outcome.

    • 14 years ago that was true.

      So how do you asses 8 billion current and I forget how man billions in tax cuts Boeing blackmailed Washing State into or threatened to go some place else?

      Or the very dubious if not outright illegal (be a nice court case eh?) of Forward Accounting where you never pay taxes on your profits?

      To me, picking a tiny slice of a financial pie and saying that is illegal and then someone who gets the same relief and call it legal is beyond hypocrisy.

      I find the EU approach a lot more honest and they get a defined return for it, rather than keel hauled.

      At some point state will pay Boeing to stay away because they can’t afford them. Be another nice revenue stream for them from the people who do pay taxes eh?

      • It is a bit old case feeding the lawyers on both sides when Brasil, Canada, China, Russia, Japan do it as well, as you creep down in the chain to Engines and its expensive parts you can add Korea, France, Germany, Belgium, UK, Norway, Sweden and others with goverment Money “soft loans” to the list.
        In the US the constant support of PWA/GE to develop new military core Engines that civil core Engines can copy has been going on since WWII.
        It is like trying to ban bribes in public projects around the world, it has been there since they started building the Roman empire, I can bet there were bribes involved in providing manpower building the Egyptian pyramids as well..

        • Funny how failure to keep up militaries in the 30s lead to WWII.

          Me thinks US milgary core engine are not such a bad thing.

          Having seen the history of two World Wars and hundreds of millions of dead people, I am quite fond of at least a lower level of that sort of thing.

    • @ Steve

      I think you would find Boeing would not exist without it either, effectively massive tax breaks for developing the Dash 80, all basic R&D paid for the military, etc etc. Nowadays Boeing is the worst offender as European Govts have balked at giving too much more recently but individual states are held to ransom in the US. Further they have mined a rich seam of govt funding in Japan.

      What you seem to be wanting to do is unwind almost 50 years. Please bear in mind that the European companies have at least as great a historical legacy in aircraft manufacture, Airbus was about giving the setup critical mass that American manufacturers enjoyed.

      I did laugh when you talk about true legal trade practices. Repayable launch aid has been accepted as far as I understand it and the argument is about how much. The massive tax breaks enjoyed by Boeing just to remain in Washington are another matter.

      And of course we have the Russians, Japanese, Canadians, Chinese, Brasilians etc etc all putting monies into their industry. We have an industry that is nicely poised at present, the competition is real and everyone benefits from it in pricing and research and development. Unfortunately govt support of all entities is price paid for this. So presumably Emirates (as an example) is nicely subsidized by your and my taxes. Its a funny old game….

      • While I agree with the overall, I am a bit tired of hearing how Boeing was massively subsidized by the military programs.

        Its taken totally out of context. So My View:

        While I fully agree that Boeing built expertise in jet aircraft, it really was the B-47 and B-52 that setup the Dash 80.

        Europe was beyond a mess post WWII. The Russians had seized Eastern Europe and fully intended to keep half of German and wanted to stay in Austria as well. Winston very eloquently called it the iron curtain (you know, the sort of area where people were tortured and killed on a regular bases) .

        The US had an unusually capable President who had fought in WWI (front line combat) and saw all the impacts on the US in WWII.

        There was a determination not to repeat the past two Wars.

        One was the Marshal Plan (yep, US tax dollars saving Europe) the other as the Soviet threat evolved was the ability to deter or fight.

        While some will argue that was purely selfish on the US part, the net affect was a free Western Europe that went onto develop a competing economy. Certainly not the worst outcome.

        All of Europe has benefited from that as has the US.

        There is this refrain though that we cheated by Boeing taking advantage of the tech and applying it to aircraft.

        We saw what the first European efforts came to, aircraft falling out of the sky. And no vision as it was a small aircraft (and that is what we saw subsequent)

        We can also look at Lockheed who supplied C-130, C-141, C-5 that never did develop a successful civilian aircraft program.

        So its not a slam dunk. Douglas and then MD failed.

        In the meantime, most of Europe developed its Sicilian economy and social systems and its support but severely neglected to put money into the military for other than jobs programs (UK has done far more).

        I have followed in depth two programs in Germany.

        Currently, despite a rising threat, they have all of 100 Leopard tank ready for combat.

        http://defence-blog.com/army/more-than-half-of-the-germans-leopard-2-main-battle-tanks-are-unfit-for-service.html

        Out of their sub force, they are lucky if one is working. As of last October, none were

        https://www.defensenews.com/naval/2017/10/20/all-of-germanys-submarines-are-currently-down/

        So the US maintained a military (some period better than others) and European complain that US firms take advantage of that?

        Europe could have done the same but elected not to.

        Maybe less finger pointing and more money spent on the military?

        Nah, the US is not playing fair.

        I wonder how Europe would feel if they got to enjoy Russian hospitality ? We get kind of an idea where the former WARSAW states (who all want to be in NATO) are putting money into their military.

        • The Dash 80 has a mother and a father: The B-47/B-52 for swept wings/engines and the B-29/Stratocruiser/C-97 for pressurization and airfoil.

          I’ve seen the popular refrain that the industry “learned” from the Comet square windows, but Stratofotresses and Stratocruisers were pressurized and in service well before DeHavilland cut metal on the Comet.

          Color me likewise tired of the complaint for all the reasons you are.

  7. When is a subsidy legal or not?

    But on the other side of the coin, how much taxes have AB paid over the years through sales of their products. Also how much tax and taxes such as VAT/GST had AB employees and suppliers employees paid over the years. A good investment by Governments stimulating the economy?!

    Does Boeing want a monopoly so they could charge $500M for an 787?

    • Yep, more than one side to the coin.

      It didn’t used to be how the US worked, but tax breaks for corporations are mandatory now.

      Of they take their marbles and go play elsewhere.

  8. I think the funniest and largest irony of this whole deal is that the fellow who initiated this whole mess, Mr. “Ramp up the rhetoric” Stonecipher, has been out of the picture for 13 years now.

    One could wonder in retrospect if he initiated the whole process because he knew how bad the 787 would turn out (execution, not technologically or sales wise) and was trying to limit the damage beforehand.

  9. What a shame the EU cleanskys programme is only about improving the environment,otherwise European aerospace companies could use all that research to make money and it might look a bit like a subsidy.

    • I am willing to bet those sneaky Europeans are using it to improve technology under the guise of being green (grin)

      Maybe they should use of it to clean up the diesel emissions mess?

      Not to mention they exported hundreds of thousands of pollution spewing diesel and made money in the US on them.

      Casus Belli?

      • I thought you liked your Passat? Off topic (as usual, while in global warming affected area/s of the world. See Alska converted their 15 MAX8’s to 9’s, part of a long term plan to “sideline” the 321N’s?

  10. Bab bad Airbus…. Now off to bed with no dinner. And, make sure you do better tomorrow!!!! BS

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