Bridges Weekly Trade News Digest • Volume 13 • Number 25 • 8th July 2009

Boeing/Airbus Feud Reignites over New ‘Launch Aid’

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Discussions over potential new European subsidies to plane manufacturer Airbus have reignited an ongoing trade row between Europe and the United States over state support of civil airline industries. The two sides have been locked in legal battles over Brussels’ subsidies to Airbus and Washington’s support for Boeing since 2004.

The latest flare in the dispute was sparked last month, when officials from the France, Germany, Spain and the UK met to discuss the provision of € 3.5 billion in new development ‘launch aid’ to European manufacturer Airbus. The additional support would offset the cost of Airbus’ A350 long-range aircraft, which is set to be completed in 2013. The new A350 will compete with Boeing’s 777 and 787 aircrafts but is expected to have lower operating costs and use less fuel. The meeting caught the attention of US trade officials, who maintain that this type of aid violates international trade obligations.

The US is also concerned because the new European talks go to the heart of an ongoing and unresolved legal matter. Washington is awaiting an interim ruling from the WTO in the next few months that will address the legality of launch aid awarded for past Airbus projects. Prior to the A350, European countries provided assistance for Airbus A340 and A380 airplanes, granting the manufacturer preferential loans and conditioning repayment on the projects’ commercial success. As a result, the US invoked the WTO’s dispute settlement mechanism in 2004, alleging, inter alia, that the subsidies violated provisions of Article 3 of the Agreement on Subsidies and Countervailing Measures (SCM) and resulted in lost sales for Boeing.

Washington has indicated that it will not tolerate the new launch aid scheme, especially in the run-up to the interim ruling. “If they do move forward, we will respond quickly and swiftly and file another action within the WTO,” US Trade Representative Ron Kirk said at a press conference on 25 June.

That might not be necessary however, depending on the arbitrators’ decision. “If the WTO finds what the US has asked it to find, there would be no reason to file another complaint (on the A350 launch aid), as it would be covered” by the WTO interim ruling, Robert T. Novick, a legal counsel for Boeing, told Dow Jones Newswires on 17 June.

But France, Germany, Spain and the UK are not expected to give in easily. After the US requested consultations with the WTO in 2004, the EU filed a counter-claim, alleging that the United States also provided illegal subsidies to Boeing through contracts with the US Department of Defense and the National Aeronautics and Space Administration (NASA). The European Communities believe that their approach is more transparent than the US practice of providing military contracts and tax rebates to its flagship airline manufacturer.

“To level the playing field, the only available and transparent way of funding A350 is through repayable loans, although today nothing has been agreed or decided with the four governments,” Airbus spokeswoman Maggie Bergsma told Dow Jones. “Boeing has a US$ 5 billion advantage that has to be leveled out.”

In the meantime, US and European trade officials will await the WTO’s interim decision, which Kirk believes may be out by the end of August.

ICTSD reporting; “Kirk Says More Aid to Airbus Would Spark U.S. Complaint to WTO,” BLOOMBERG, 25 June 2009; “AIR SHOW: Boeing: WTO Ruling Could Cover A350 Launch Aid,” THE WALL STREET JOURNAL, 17 June 2009.