Bridges Weekly Trade News Digest • Volume 13 • Number 31 • 16th September 2009

WTO Issues Interim Ruling in Boeing-Airbus Dispute

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The WTO has issued an interim report in a long-running spat between the US and the EU over airline subsidies, media sources reported last week. The confidential ruling, which was said to have largely found in favour of Washington, could impact a pending US military deal for refuelling tankers worth an estimated US$ 35 billion.

The interim report concerns the EU’s € 3.5 billion ‘launch aid’ subsidies to European manufacturer Airbus. The additional support is meant to offset the cost of Airbus’ A350 long-range aircraft, which will compete with US-based Boeing’s 777 and 787 planes but is expected to have lower operating costs and use less fuel.

US officials claimed the ruling was a victory for US interests.

“They didn’t assess a damage amount, as of yet. But they said there was a violation of the rules and there was harm that happened to Boeing because of this … aid that was illegal,” Senator Sam Brownback of Kansas said on Friday, Reuters reported.

The office of the US Trade Representative declined to comment, citing the ruling’s confidentiality.

Brussels and Washington have tussled over aircraft subsidies for more than three decades, essentially since Airbus emerged as a major market player in the 1970s. In 1992, the two sides signed the Agreement on Trade in Large Civil Aircraft, which set out guidelines for how the governments could support their aircraft manufacturers. But Washington pulled out of the deal in 2004 and promptly launched a WTO challenge against European subsidies. Brussels followed suit with its own dispute case just a few months later.

Governments on both sides of the Atlantic heavily subsidise the production of civil aircraft, an industry marked by long investment cycles, frequent external shocks, and extremely high barriers to entry.

The interim ruling could impact a major pending deal with the US Department of Defense. US-based Northrup Grumman has partnered with Airbus’ parent company, EADS, to bid for the US$ 35 billion contract, for which Boeing is also competing. Some US officials have called on the Defense Department to refuse Northrup’s bid based on the conclusions of the interim ruling, but others say that would go too far.

“It would be a grave mistake, with severe consequences for both our economy and trade relations, to use a preliminary WTO report as justification for restricting the ability of our military to procure the best equipment possible,” said Senator Richard Shelby, whose home state of Alabama is where the tanker would be built if Northrop wins the contract.

Meanwhile, Brussels’ counter-suit is still in the works. In that case, the EU alleges that Washington provides illegal subsidies to Boeing through contracts with the Defense Department and the National Aeronautics and Space Administration (NASA). Brussels says that its approach to subsidies is more transparent than the military contracts and tax rebates that Washington offers to Boeing.

ICTSD reporting.