Leeham News and Analysis
There's more to real news than a news release.
Leeham News and Analysis
- Boeing defends 787, 777 against whistleblower charges April 17, 2024
- Dissecting Boeing CEO’s statement next new airplane will cost $50bn April 15, 2024
- Bjorn’s Corner: New engine development. Part 3. Propulsive efficiency April 12, 2024
- A350-1000 or 777-9? Part 2 April 11, 2024
- Pontifications: Boeing “transparency”–not so much. April 9, 2024
Boeing may have checkmated Airbus in trade dispute
By Scott Hamilton
Feb. 20, 2020, © Leeham News: Boeing may have just checkmated Airbus in the long-running trade dispute between the US and European Union.
In an unexpected move, Boeing and Washington State crafted legislation to void tax breaks 
dating to 2003. The tax breaks were given to support development and assembly of the 787 in Washington. They were extended in 2013 to support assembly of the 777X in Washington.
The tax breaks were found to be illegal by the World Trade Organization. The US appealed the amount of damaged. An outcome is pending was due in May or June.
This case is parallel to another against Airbus. The WTO found Airbus received illegal subsidies and failed to cure them in connection with the A350 and A380 programs. All Airbus airplanes imported into the US, along with other goods unrelated to aerospace imported from the EU, are now subject to tariffs. The Airbus planes have been taxed at a 10% rate since October. This goes up to 15% in March.
A Big Win for Boeing
This is a big win for Boeing, even if Airbus and the EU object to a set of replacement tax breaks crafted in the legislation.
Any new objections will take years to wind the way through the WTO. (This is further complicated by the Trump Administration’s refusal to allow new appointments to the body.)
In the meantime, Boeing appears to remove the threat of the EU applying tariffs to its airplane this summer.
No reaction was obtained from Airbus in the short time since this news emerged. But it’s virtually certain Airbus and the EU will point to an outstanding element of the WTO decision against Boeing over a federal tax break received years ago that was found to be illegal.
A mechanism called a Foreign Sales Corp. (FSC) tax break was ruled illegal. A replacement break was also found illegal. This was never remedied. The EU never imposed tariffs on this finding but pointed to it in the current case against Boeing.
But any tariffs that might happen against the FSC and related rulings will probably pale compared with the potential against Airbus.
The US may impose tariffs up to 100% against the value of the Airbus airplanes.
In appears Airbus and the EU have been checkmated.
However, there is one more move in the EU’s corner. The EU is holding hostage the approval of the Boeing-Embraer joint venture.
UK says the Airbus A350 loans have been paid back with interest. What interest has Boeing paid? Of course NASA input etc was part of the EU claim. I am not at all sure that EU will cheerfully allow US to apply 15% tarrifs. They will be met with 15% on US aircraft. In the end the two sides will fix this mess.
So Boeing is now paying back all the taxes?
The problem is the damage done by the taxes at time.
Boeing just gives a matchbox back after burning down the house. This won’t change the damage already done.
The taxes may hit A330 and A350 but not A320 sales in the US. On the other side an EU tax on Boeing aircraft will hit any Boeing aircraft.
“So Boeing is now paying back all the taxes?”
I’d expect no pay back but some intricate scheme to fold these transfers into the currently upcoming losses
turning the losses neutral or net positive.
Expect to be surprised how this works out.
Unsure how US imposed 300% tariff on BBD C-Series if the Max they can impose is 100% ?? Boeing was also getting subsidies from the US ExIm bank which gave low or interest free loans to foreign companies like Emirates, to buy Boeing. This isn’t mentioned here.
EU could hurt the US by imposing 100% tariffs on US software and stop Irelands tax loophole for US companies in the EU, if they refuse they could be expelled from the EU and make the Brexit administration easier.
Airbus could say we only take orders from US airlines for aircrafts to be built in Mobile Alabama without tariffs and deliver its EU/China built aircrafts to the rest of the world that pretty easy can swallow that production volume and wait for a new President of the US. US airlines hungry for Airbus aircrafts will then lease them instead (from Irish based leasing companies). The play will move on..
Sorry Scott, but I have no idea what you are saying or how this miraculous legal trick works.
Boeing is removing part of the counter-argument made by subsidized Airbus, that Boeing also receives subsidies in the form of tax breaks. Boeing can afford to return those breaks. Airbus cannot similarly afford to return their subsidies. They have paid back some loans but the WTO ruled that the subsidies continue.
But it’s not check-mate as the game won’t really end until there is settlement and agreement on what constitutes government assistance and how it can be regulated, on both sides. In the meantime, the WTO will probably allow some degree of tariffs on both sides.
use your mouth for talking, please! 🙂
Didn’t Canada go down the same route , rescind well known ‘rebates, subsidies or grants’, and instead replace them with susidies that were a complete secret.
My guess is Boeing and Washington will go the same way, and do it all in secret.
If you thought Bombardier was getting a free ride, it’s a fraction of what Pratt & Whitney Canada got.
Actually NO ! the prize goes to Boeing and GE in the U/S. Research the Uß ExIm bank and see how many BILLIONS of loans given to foreign airlines, and get back to me.
The real hostages here are airlines in the US. With tariffs so huge on Airbus planes, Boeing can charge whatever they want to domestic airlines as they won’t have any real incentive to lower their prices.
Let’s remember: Tariffs are paid by customers, not by the seller.
Not so fast, its closing the barn doors after the horses bolted Is Boeing and WS mfg going to pay back the subsidies they have recent for the past 15 years for 7e7/787 and 777X programs? Of course not….so its still an illegal subsidy taken…looks like Boeing Washington DC office has been working overtime for this angle of disinformation!
Is this retroactive?
Could Airbus then also pay back a few billion launch aid and get the same amount at the same time as “R&D support”
No.
This is a Jovi non Bovi thing.
Obviously the US is morally superior.
( presented by way of royally screwing any morals available. )
IMU one can’t be more fake than this in a debate on “morals”.
Again IMU this is about raping any morals ever having been postulated. On a level with the catholic church: “people that were raped by priests failed gods testing”.
If that happened, it would just result in another claim by the US. It’s similar to the suggestion that the recent Airbus bribery penalties be channeled back to Airbus in the form of R&D support. That would trigger another round of complaints.
The end game is to agree on what forms of government support are permissible for both sides, and to what extent. Until that agreement is reached, there will be continual disputes and tit-for-tat actions, with the WTO trying to balance the claims and counterclaims.
“The end game is to agree on what forms of government support are permissible for both sides, and to what extent.”
AFAIR : RLI was such an agreed upon form of support.
The US WTO litigation retroactively tried ( and succeeded ) to revoke this instrument.
This indicates that whatever kind of agreement can be reached with the US is prone to being rolled back later.
( the Boeing/Airbus spat does not stand alone but in a longer list of similar cases like the Iran deal. )
Today it makes even less sense to go for any Treaty with the US. Either you are f+cked in the treaty from the get go or you get the same treatment later on by revocation or noncompliance on the US : “just can’t be bothered”.
Uwe, according to the WTO, Airbus failed to abide by previous rulings. Airbus amended their RLI, as directed by the WTO, but not to the extent needed, as judged by the WTO. Nothing was revoked, and the US position did not change.
The US did comply by ending the federal support for Boeing, and now state support as well. Those have been or will be judged compliant.
“.. according to the WTO ..”
WTO no longer is a non partisan institution.
Actually I see no independent institution remaining in international affairs. All have been subverted in one way or other by the US.
Its a difficult thing to regulate. The U/S government gives out “discreet” subsidies to companies like Boeing. They will give some obscene amount for R&D to a company like Boeing, which is essentially a subsidy to the Corp.
What, so WA is retrospectively changing its laws to enshrine the tax breaks Boeing got to now be a legal right, and not just something individually negotiated? I wonder what other businesses in WA think of that. Do they get tax breaks too, retrospectively?
I don’t quite see how the WTO, apparently unable to consider appeals quickly, can have assessed the remedy for being “OK, tarrifs cancelled” today. And the EU is perfectly able to ignore the WTO and impose tariffs anyway, especially as it can point to US interference in the operation of the organisation.
AFAIK it’s not whether or not the tax breaks were legal in WA law that matters. They always were legal in WA law, enshrined in legislation or not (if they weren’t legal, who got prosecuted?). What matters is whether the functional arrangement between the state and the company were legal according to international trade treaties, and those are something that WA does not have a say over.
It’ll certainly be interesting to see how it goes. Right now I suspect that any A320neo family cancellations arising would easily be swallowed up in the global market, possibly at the expense of the MAX. Well priced and quickly available A350s might tempt the ME airlines away from the 777X and discourage further 787 sales generally. Boeing’s reputation ain’t that great either at the moment. Also right now, Boeing can’t supply US operators with MAXs at any price, whereas Airbus can supply A320neos. There’s a good chance that all of this might turn the world of aviation into Boeing for the USA, Airbus for everywhere else, and I can’t see that being good either for Boeing or the US consumer.
WTO is hamstrung. It can’t act as a nonpartisan party any more.
Boeing can’t get over its addiction to competing with lawyers instead of engineers.
They should concentrate on building safe modern airplanes that people want to fly in.
Well said.
I don’t understand this. According to Flight Global, tax breaks for Boeing will be just ‘suspended’ until trade dispute is resolved. How is this removing threat of tariffs considering that the whole point of WTO-mandated tariffs is recovery of already incurred losses? If a simple trick like this works, the the whole dispute resolution mechanism is useless.
The WTO ruling was enacted based on the failure to reduce or eliminate illegal subsidies by both sides. In the event of failure by either side, tariffs are authorized based on the extent of economic damage estimated to have been done to the other side.
By removing the tax break, Boeing can show they are in compliance, as that was the only illegal subsidy documented by WTO for Boeing. Thus there should be no WTO action.
Airbus had the same option, but their subsidies are not avoided-cost as the tax break was for Boeing. They have direct funding being provided by the government. So it’s not as easy for them to eliminate the subsidy.
Language in the WA legislation says that in the event of withdrawal of the tax break, other means will be provided to prevent economic damage to Boeing. However if they exercise that option, or the tax break is restored, the EU will bring that before the WTO as non-compliance. So it’s unlikely they will do anything with it, at least for now.
About 19 years ago – SPEEA was preparing to file a petition against Airbus for duckingWTO rules re government subsidies. The numbers involved were generally between 10 and 15 percent ‘ discounts’ from’ cost ” re sales of Airbus Airplanes.
Matter of fact – The petition had been approved by SPEEA Council and scheduled to be delivered to Washington D.C Commerce Dept the 2nd week in September 2001. Then came 911 and everything stopped. Later efforts to continue were spiked by Boeing. (And then about 3- 4 years later- Boeing via a similar route filed against Airbus )
Digging back via google and other means- I found the following
https://sites.google.com/site/oldcvd2001 fileld in about 2014 but referring to 2001 a few weeks before 911.
It only took a half decade to come up with similar numbers
These Tarifs don’t yet apply to either the A220 or A320 models assembled in the USA yet? Airbus is now Pratt & Whitney’s Main Customer for large single aisle aircraft so hurting A220/A320 will hurt PW for the sake of Boeing and GE. The effect will thus be on A350 and A330.
It’s also tragic for European cheese and American connoisseurs. Recent trip to Russia I was told that Russian reprisals to EU sanctions had made an impact in making cheese boring in Russia.
However ultimately both European and Russian aerospace will strengthen through this.
Clearly some limits need to be set if one wants free trade but they are now getting extreme.
I also note that the B777 killed the A380 with 1600 sales to 280 and that A380 are being prematurely retired yet the B777-X Lives.
Airbus gets about 17.5% of its revenue from US sales. I suspect these tariffs will kill Airbus widebodies in the US leaving Airbus with A220 and A320 but few A330neo or A350 orders. A few may slip through as airlines spend 3 times more in fuel than aircraft purchases. Given the MAX May die in the next 5 years eben A220/A320 may suffer Tarifs.
The US Airlines might lease Airbus aircrafts instead that has previously been operated in other coutries, hence these new N-registered Aircrafts will not be “new” but “used” and owned by a leasing Company in Singapore or Ireland and thus aviod import duties.
“”Airbus gets about 17.5% of its revenue from US sales.
I suspect these tariffs will kill Airbus widebodies in the US””
Is the US revenue really needed when Airbus has a big backlog?
The world knows about Boeing self-cert jedi mind tricking now. Let the world check the 787 in detail too. Where will Boeing widebodies fly to when they can fly only in the US?
777X certification? EIS when? 2025?
I wonder what the aircraft lessors who buy Airbus for US carriers think of paying 15% more for the Airbus aircraft knowing Boeing gave the US government the green light to impose the tariffs! I didn’t think it was good business to attack your customers I guess its business as usual with the new Boeing CEO/Prez
Oh yeah, doesn’t the US need EASA approval to get the Max back in the air? Let’s see…MCAS, wiring issues and now FOD in the wing tanks Can you say 2 years of grounding of the Max!
I really hope EASA will not be used this way – playing political games with security will end badly for everybody. EU has other means of reprisals : dragging it’s feet on Embraer deal, leaning on Airbus to phase out US-built components and replace them with European sources or even straight up ‘f*** WTO, we are putting tariffs on Boeing anyway’.
EASA can’t and won’t be used in this way !
Airbus can top that giving all US customers less discounts. Let them pay more to get the benefit to earn with Airbus planes.
Let us see how it will work out if all US companies only fly Boeing.
The exemptions Boeing got from FAA and keeping it secret. Cheated self-certifications. Never made an independent software audit for any plane. Equal to big subsidies.
If cheap untrained prisoners assemble plane parts, is this not a subsidy.
Let us wait for the fines Boeing will have to pay for letting death trap planes fly over Europe, other countries might follow with fines too. Of course FAA/Trump made a mistake not to ground the MAX earlier but Boeing alone will have to pay the fines for FAA/Trump mistakes.
The rest of the world don’t really need ciminal US aviation.
I want to see rich people in the US flying with Boeing’s culture of zero quality.
Muilenburg went over the FAA directors head and the Transport secretary’s head (Trump appoints the Transport Secretary as part of his cabinet) to try and avoid the MAX being grounded. Trumps response was to ground it himself pretty much immediately. He can’t be faulted for that. However it’s well known that President Trump wantS to reindustrialise the USA. He has a well known tendency to take things to the brink, he has written that he believes in the necessity of trade wars, but he often opens up to “win win” negotiations after that. Boeing at this point is a one horse show with the B787. The B777-X and B737 MAX won’t be producing revenue so I’m sure this is a way of boosting Boeing a little. The trade embargo’s with Russia are not Trumps doing nor is the relentless smearing of its President and Russia. They have driven Russia into a powerful allegiance with China when the could have been politically and economically with us. We will see a MC21 with Russian PD14 engines, Russian APU and Russian FBW and avionics when all of these could have been US. Furthermore the tech will make its way to COMAC.
Well, their Venezuela policy has given Russia a great base for IRBMs, now that Putin is allowed to build them. The level of self harm is stunning
Wasn’t this WTO verdict about Airbus paying interest rates below market standards & been asked to repay?
Press repeated the size of those loans, but not the fact they are loans and so far were always been paid back. More than paid back.
The Boeing tax cuts were way larger and never have to be paid back. https://news.bloombergtax.com/daily-tax-report-state/boeings-8-7-billion-tax-break-up-for-a-vote-in-washington-state
The public sees a Airbus 20 Billion loan as higher than a Boeing 8 Billion tax cut. The pay-back (loan) versus no pay back (tax break) thing somehow gets lost.
Give me a 8k tax break over a 20k loan every day of the week & 2 on sundays 🙂
Trying to turn rock solid state subsidy & protection & bail out into something bigger, more complicated, fair. If you can’t convince them, confuse them..
A Tonkin/ WMD is needed to “defend” Boeing against “unfair” foreign practises. Sells so much better then bail out a heavily subsized strategic assett because of Quality problems & Greed.
Not saying the US government shouldn’t safe Boeing, IMO there are plenty good reasons for that. E.g. aerospace exports, knowledge, jobs, defense contractor, healthy global competition and innovation.
Only fear this feeds for me is that this signals Boeing might be in a much weaker position than we are made to believe.
Keesje, this distorts the true picture. The tax breaks are actually much smaller than the loans & grants that comprise EU launch-aide, and in several cases those funds have not been paid back.
The $8.7B tax figure was for all aerospace companies in WA, over the 40-year expected life of the legislation. Much of that will never materialize now. The actual value across the state was closer to $500M per year. Boeing received a significant portion of that as the biggest vendor, but the annual percentages depended on annual profit.
Also this is avoided cost, not a source of funding as the Airbus loans are. It can’t be used as collateral or as up-front launch-aide. It’s a savings rather than a direct investment. Boeing must have profits to realize the benefit of the tax break. In years where it takes a substantial write-down, the benefit is much lower.
By contrast, Airbus receives direct funding in the form of up-front launch-aide from four governments, and much of that funding is below market rates. It’s also either tied to sales results, or otherwise subject to forgiveness. $1B was forgiven in 2019 alone.
The EU has thus far been unwilling to end their subsidies of Airbus. That is the root of the WTO cases. They argue that military contracts to Boeing constitute an equivalent subsidy, among other things (such as NASA development and various tax incentives). Note that Airbus too has exclusive military development contracts from EU member governments, but they do not likewise consider those to be a subsidy.
The WTO found that only the WA state tax incentives represented an illegal subsidy, comparable to what Airbus receives. So that will now be ended. This will put the WTO dispute in terms of full compliance by the US and non-compliance by the EU.
I mentioned before that agreement of some kind is needed as to the level & type of government support that is permissible, so both sides can willingly comply. But we seem as far removed as ever from that agreement.
It’s a straight subsidy that has enabled Boeing to price the 787 more cheaply and maintain profits. I hadn’t thought about Boeing not making any profit for the next couple of years. A400 is effectively a tax on AB.
Does anyone actually know how much profit airbus has paid to governments vs debt forgiveness?
Boeing gets to keep all the money.
Boeing benefits from ‘Launch Aid’ as well …in Japan which is even more generous than EU levels
” Boeing benefits from a Japanese scheme for development and production of Boeing’s 787 aircraft, which competes with the Airbus A350. In effect, 35% of theB787 will be produced in Japan and it is understood that Boeing’s risk-sharing partners have received financing from the Japanese government of up to 70% of
development costs (the ceiling in the EU is 33%). And this is on top of the other forms of support Boeing receives.”
https://trade.ec.europa.eu/doclib/docs/2010/september/tradoc_146503.pdf
That’s why Boeing outsourced so much of the 787, that aerospace comapnies around the world could get “soft goverment loans” to build sections, parts of systems and engine parts in the end benefitting the 787 sales thru very low capital costs initially. Normally the “risk and revenue sharing partners” have to pay off the loans in a slow pace at low interest rates but a pretty good fee per unit shipped. If the program gets successful after 3-5 decades of production those fees add up and never stop.
Grubbie, with launch-aide it depends on the success or failure of the funded program. For aircraft that are successful, a portion of the principal plus royalty/interest is paid back to the government at each aircraft delivery. So for successful programs, the loan is repaid and the government profits. For unsuccessful programs, there are not enough deliveries to repay the loan.
This practice tends to indemnify Airbus against risk. Loans are also forgiven for cancelled programs. Launch-aide is thus very different than loan debt, with only governments willingly undertaking launch-aide for this reason. Traditional lending institutions will not accept those terms.
In the example of the A350 vs B787, the EU gave about $5B to Airbus in launch-aide and other subsidies, while the US gave about $4B in research, development, and tax benefits to Boeing. The WTO found both forms of assistance to be in violation.
In response, the US removed the federal incentives to Boeing, leaving only the WA state tax break as the remaining violation. That will now be suspended as well, so the US will be in compliance.
The EU removed their other subsidies but left the launch-aide basically intact, claiming it was subsidy-neutral because the royalty payments made them loan-competitive. The WTO disagreed and found the EU to be non-compliant.
It’s obvious that launch-aide transfers development risk to the taxpayer. It’s a strategy of the government to make their native companies more competitive.
The US is one of the few governments that doesn’t do launch-aide. For example in Japan, the government has provided loans for the 787 components developed there, of about $1.6B. The EU has argued that this is further subsidizing Boeing. Canada has also provided launch-aide for various programs.
The US had pressed initially for the launch-aide to be less than 1/3 of the development costs. EU says they have now achieved that. The US would like to see the practice ended entirely.
Economists have pointed out that launch-aide lowers the high barriers for entrance to the market. For example China is using it extensively in their commercial aircraft program. Other newcomers will likely do that as well. So there are economic and philosophical questions regarding justification.
RLI ( as in “investment” instrument) has been overall net positive. Quite the nice sum actually.
Again as “investment” there is risk of loss with the individual RLI object.
It is all about some sophist argument chain versus
an objective dissemination.
Obviously the WTO did not think so, and obviously there are benefits for Airbus, or they would seek traditional financing instead. They could never get the same terms privately.
Airbus claims a 40% return on investment for the governments on RLI. But traditional market rates have been holding at a few percent, so why would this be preferable.
Also billions in RLI debt have been forgiven. I suspect these facts played heavily into the WTO decision, and that they did their own more objective analysis.
The banks spreadsheets does not cover that many years for risk calculations with a payback after years of low interest payments. Still many sucessful programs have a production run of 25-40 years, just look at the CF6-80C2, Cessna Caravan. Hence only goverments step in to finance programs like that.
The payback terms of launch aid varies by program. On Airbus programs many is a Goverment loss, but the A320 launch aid that is is structures as a loan and a per Aircraft fee is a huge success for the goverments that keep on cashing in on the fee as the production volume is soon x 10 what was expected. It could be interesting to sum the losses and gains on these Airbus launch aids to see the total sum.
It is a bit similar to US Ex-Im bank where it actually helps US industry and makes a profit for the goverment but annoys the NYC bankers that influences the US goverment.
As I remember the same is true for A330 and A330neo because neo is just a new engine.
So if A350/A380 RLI could be somehow “tranferred” to the A320/A330 what happens? I assume it’s not so easy or they would have already done it.
I would suggest the bulk of that tax relief benefited Boeing and its suppliers and vendors. The tax benefit serves the entire supply chain.
kkeseje ” Wasn’t this WTO verdict about Airbus paying interest rates below market standards & been asked to repay?”
Not that simple. Under GATT92 morphed into WTO, low intrest govt loans for research and initial production were allowed, and with moderately generous terms. But included were terms that had time and production and sales goals and schedules based on ‘ good faith’ projections. Airbus and related gamed the system. Simplified example. Interesting things included in research category. Sales projections ‘ optimistic ‘, such that if say 500 units were not sold or delivered by xx date at an average of yy dollars, then reductions in loan were permitted. And payback did not start till the 20th plane was delivered, eventually if zz planes were not sold-delivered by KK date, then remaining loan was forgiven. In many- but not all cases, the projections were knowingly optimistic, ‘ costs’ were pencil whipped, and related projections were biased. Which when totaled had maybe a less than 10 percent chance of being met under the best realistic scenario.
Now add to that the games of ‘ cost’ and ‘ sales’ price and maintenance and warranty and …. and the possibilities of gaming system multiplied a bit here and there. Sort of like the old razor blade game- sell the razor for cost or less, and make big bucks on the unique razor blades needed to fit and which were ‘ cheaper to replace than to sharpen . . . Just a larger version of the ‘ sale at cost’ seasonal game of new or used cars.
Proving just how numbers were baked in a ponzi like scheme takes a long time.
For chuckles – look up or find if you can the WTO definition of LCA ( large commercial aircraft ) as to say number of passengers, weight, or other defining parameters and you will probably find almost anything larger than a 2 person glider might well qualify.
“ponzi scheme”
problem with concepts.
A “Ponzi Scheme” is a pyramid investment game where the top layer profits are supplied with newly invested money from the expanding bottom lines.
no productive work as profits ware paid from expanding the investment volume. Must go bust.
The existing “capitalist system” shows some properties of a ponzi scheme: it founders when it can no longer expand.
Another peeve: RLI is not aid but by design an investment. ( Even if Rob can’t wrap his mind around it.)
Moving away from intricate sophist arguments that did not describe reality enabled our developing a wide range of scientific insights.
I don’t see this with the US side arguing from the toolbox of Schopenhaurer’s Rules on how to win an argument. Schopenhauer did not collect a “How To” but a “What not to do for productive discourse”.
i.e. no intellectual progress from before the Reformation.
UH Uwe ?
A crude history below
https://www.bbc.com/news/business-44120525
Cliff note version In 2004 about 22 Billion was loaned by EU countries involved to launch the A-380. But several questions as to what was considered launch aide, what interest rate, what first payback schedule, and what ” gates’ such as production numbers by date, sales by date, total sales-deliveries to be made by which dates ( and so on for dozens of pages) were part of the agreement.
But as it worked out – AS-380 sales did not ( or never will ) meet several targets, thus some percentage of ” loans ” ( launch aide ) will never have to be paid- and some need to be extended. And WTO rulings eventually
ruled the system- loans- subsidies- tax breaks- and how counted were either gamed or continued above and beyond agreements. Thus – IMHO-there are-were some similarities to a Ponzi scheme writ large. More investments ( loans- subsidies ) made over the years for promise of future gains or payback, with ‘promises and celebrations on ‘sales- production ‘ along the way. So actual money changed hands with agreed on paybacks IF sales numbers were met by a certain date(s)
OTOH – Boeing got no govt loans, but an agreement to pay reduced taxes over a period of years, with financing being mostly internal or regular commercial bank loans and/or stock sales.
IMHO- Without GATT92 or earlier versions- Airbus would probably not exist.
Nuff said
What did you want to tell us here?
Maybe that there are different methods of making government support available?
What US is going for is obstructing one method while keeping another one out of sight.
compare to doping:
The US is really “screeching” when pointing out Russian doping cases.
What they carefully keep out of sight is that US athletes get similar medication effective for doping. The narrative here that these athletes urgently need these substances for “medical reasons”.
Uwe, these things are again not true, there is no other funding method being kept out of sight, and no US sport or government body sanctions doping, as has been found to be true elsewhere in the world.
Even if this was true, your argument is that it’s ok to break the rules because I suspect the other guy is doing it too. All that is required is my suspicions, in that case.
I’m sure that was the same kind of thinking and justification that led to the Airbus bribery scandal.
Bubba’s basic points are correct. There is a difference in the type of assistance provided, and the WTO took that into consideration.
[Almost] All top sports people are doped. You can see the times they are running , cycling and so on are not going down. Of course Lance Armstrong was clean. The doping agencies are so busy testing old Russian samples that they forget other countries.
Rudolf, while individuals in the West might be caught doping, it is never an officially sanctioned practice. Those people are cheating and are treated accordingly.
“Russian doping is distinct from doping in other countries because of the fact that in Russia steroids are supplied to athletes by the state. Due to widespread doping violations, in 2019 the World Anti-Doping Agency banned Russia from all major sporting events for four years.”
“Systematic doping in Russian sports has resulted in 47 Olympic and tens of world championships medals being stripped from Russian athletes—the most of any country, more than four times the number of the runner-up, and more than 30% of the global total. Russia also have the most athletes that were caught doping at the Olympic Games, with more than 200.”
https://en.wikipedia.org/wiki/Doping_in_Russia
Boeing are not actually paying anything back? What about South Carolinas half billion? 3.2 billion aid for the 787 clearly helped its competitive position against airbus, this doesn’t make any sense at all.
This is lawyers trickery at best,if I understand the situation correctly.
The Trump administration has already suggested that attacking Airbus might be fair game in forcing EASA to recertify the MAX.
EASA are politically independent, and will certify the MAX when it’s safe !
Attacking Airbus in order to force EASA to certify the MAX quicker will only make other areas of EU / USA relations worse, it won’t affect MAX or 777X certification.
The rest of the world does not work in the same way, USA works differently to the EU, EU works differently to China.
For that matter EU, and the UK work differently, if the EU attempt to punish the UK for having the temerity to leave the EU, it will only end badly for both parties.
The difference between the EU, and the UK, is that an independent UK will be a lot more dynamic, and have a great deal more flexibility in mitigating the effects of a one sided trade deal. The real danger for the EU is that the UK leave with no deal, trade on WTO rules, but are completely mercenary in all other aspects, and strike more favourable deals all over the world.
You can be sure that number 10 is looking at all possible ways to make the UK the best place in the world to do business in. The EU need a friend off shore, not an ultra-dynamic competitor.
Wars of any kind are not sensible, and counter productive.
I agree with what’s been said here before, Boeing is better off going back to being a great engineering company, and stop using lawyers to compensate for their problems.
“EASA are politically independent, and will certify the MAX when it’s safe !”
Truth, they are independent bureaucrats, with good job security, from many independent countries.
Lets hope they never get cooperative, flexible and “streamlined” supporting local industry & jobs against the competition.
That was a real lethal experiment.
If Trump thinks that he can link threats to airbus to max recertification, the reverse would surely be true as well.
It is the huge tax breaks related to the development of 777X that is most important to the EU. Almost all airlines with 777X on order, plan to use these aircraft to and from the EU, or in EU airspace.
I feel that certification of the 777X might not happen as quickly as Boeing expects if the tariffs are not removed.
Even with jedi mind tricking Boeing was not competitive.
How can Boeing be competitive in the future?
The EU only need to fine Boeing for the MAX crime and put all the billions into EASA to check everything Boeing. End of game.
Boeing will be history.
I really wonder who invested few millions paying indian software engineers, the florida work shop, indonesian and ethiopian maint to get this result. That was real jedi mind tricking. The rest was greedy Boeing caught in a trap.
Can’t EU pull the same trick? ‘Suspend’ whatever aid WTO deemed illegal until US drops the tariffs, then put it back under a different name. US is then welcome to go through complaint process again … actually good luck with that since they crippled WTO’s appellate body.
The EU can’t “suspend” Airbus financing because it’s up-front launch aide. Airbus would have to forgo that assistance on all current and future projects. If they did that, they’d be in compliance and the issue would no longer exist. But they have pointedly refused to do that.
Suspect EU will end up taking a hard line. BREXIT has taught them that political opportunism will tear the EU apart if they can’t demonstrate some advantages to their members. France, Germany & E. Europe riven with nationalists. It goes against the EU’s nature, they started as a trade block, but their hand is being forced. Look at BREXIT discussion to start with, no Canada type deal, no access without alignment. Already talk that the common fishery will survive as UK can’t do anything worthwile with the catch outside the EU market.
Realistically speaking, they can subsidize Airbus & tax Boeing until their heart is content, as long as it is new subsidies/taxes, it will be 20 years before US get another case through the WTO. An anouncement implying that US aircraft need to be taxed at 50% because it appears that only WBs will be imported to the EU during 2020 would see BA’s bondholders looking for the door & chapter 11 circling, US aviation is in a precarious situation just now.
Can EU actually afford taking a hard line? US has a large deficit in trade with EU – over $177 billion last year (and it has been growing over the last decade). Any trade war hurts EU much more than US.
I don’t think it matters, Trump does what he wants anyway. On the other hand EU can subsidize exports, esp to China, and kill BA’s export markets. US market alone won’t support an aviation industry. If Trump doesn’t like it he would have to return the WTO to functioning, but Boeing could be history before any ruling gets made. US gov is heavily in debt as well, eventually its ability to help fund BA will run out.
I’m not trying to outguess the EU here, I’m just pointing to some risks and saying BA’s creditors might be wondering the same thing.
“Any trade war hurts EU much more than US.”
Its all relative , that deficit is only a small % of overall trade between the two of $1257 billion. ( 14%)
China was different as their exports were so much larger than US imports, the deficit was $375 bill , around 2X the US exports to China.
“In 2018, the U.S. exported more than three times more to the EU than to China,” Hense said, adding that the region could therefore hit back hard against Washington.
https://www.cnbc.com/2019/08/22/why-a-us-trade-war-with-europe-would-be-more-damaging-than-china.html
In addition a lot of the EU-US trade is between arms of various US owned multinationals , unlike buying goods from Chinese owned companies
The US still taxes EU light trucks 30% over EU refused to take US chickens loaded with genetically modified soy and antibiotics. That’s why US and Canada are full of behemoth pickup trucks.
Scott,
I am not sure I understand the implications here:
-Does Boeing have to retroactively pay all of these taxes that they didn’t have to pay before?
-Could the WTO rule that this as an action that is “not in good faith”?
-Would/could WTO rules be changed to prevent such “dodging the bullet/rigging the game” from occurring in the future?
-Does Boeing have to retroactively pay all of these taxes that they didn’t have to pay before?
No, the tax break as subsidy was provided as a general avoided cost, not as a sum provided up-front for specific investment. This is different than RLI where long-term contractual business investments were made in specific aircraft programs. Those could be either repaid or their terms modified, so as to make them subsidy-neutral.
In the case of tax breaks, they only had to be ended to achieve compliance, since there was no business or contractual relationship or investment.
-Could the WTO rule that this as an action that is “not in good faith”?
No, there was no expectation of repayment, either by the tax authorities or by the WTO. The tax break was simply a lowering of annual costs, that the WTO ruled as amounting to a subsidy.
-Would/could WTO rules be changed to prevent such “dodging the bullet/rigging the game” from occurring in the future?
The game is not rigged, the WTO fairly evaluated the assistance provided to both Boeing and Airbus, over a long period of time, by different mechanisms. Both were asked to remediate the mechanisms by which assistance was provided. The tax mechanisms in the US have been ended, which was sufficient. The RLI mechanism in the EU continues without sufficient modification, as determined by the WTO.
If the EU volunteered to forgive all existing RLI today, and not provide any further RLI funding, I’m sure that would be acceptable to the WTO and would be found compliant. That would be equivalent to what has happened with the US tax breaks.
But then the EU would have to answer for many billions in taxpayer money that was given away. So that is not a practical solution for them. It’s more practical to modify the RLI, either by early repayment or adjusting terms.
The US does not have to answer to taxpayers because it was understood and accepted from the beginning that taxes were being lowered to benefit Boeing and related aerospace industries.
How is this a checkmate from Boeing?
They and WA state are apparently complying with WTO ruling. I’ll bet the new scheme they come up with complies with or at least does not go against previous WTO directives. On the other side of the pond, the RLI terms and conditions will similarly be modified to comply with WTO directives.
We (taxpayers) win – by making these massive corporate tax claimants less dependent on gov’t support.
And apparently the WTO road works to counteract corporate greed at both these transgressors. Yes, Boeing will try to weasel their way back to the trough, as will Airbus – but we now have a stick to beat them with.
Tarifs are not a problem – they are paid by the customer and boeing has no competitive product in the majority of the market (you mentioned previously that single aisle is now 65% of the market). remember how good the american automobile was when the car import tariffs against japanese and EU models was lifted?
And on the retribution side – you mention the Boeing-EMB merger as an EU hostage – what do you think of the 737max return to flight?
Amazing gummint stupidity in WA and Canada in not foreseeing impact on WTO.
Will WA charge Boeing interest on the money they now have to pay back?
In one sense WA was providing financing to Boeing.
(Quebec situation may be more complex, gummint ownership of part of Bombardier is akin to what is integral Airbus. Some gummints have become smarter, they want shares or spend on ‘research’ and training to help an industry, some of those operations funded in Quebec.
I don’t remember what the federal government of Canada was eager to do to help Bombardier financially, Bombardier said it no longer needed the money)