Friday, September 4, 2009

Preliminary Observations on the Boeing/Airbus Dispute

The World Trade Organization handed U.S. and EU officials its 1,000-page report on whether European aircraft manufacturer Airbus had received billions in illegal State subsidies over the past twenty years.  See Nicola Clark, U.S. and Europe Study W.T.O. Ruling on Airbus, N.Y. Times, Sept. 4, 2009 (available here).  While the full findings are not expected to be made available for several months, most news sources are reporting that the ruling goes against Airbus.  See, e.g., Frances Williams, WTO Issues Confidential Airbus Ruling, Fin. Times, Sept. 3, 2009 (available here).  The EU is stridently maintaining that "[the] report is only half the story," however, "and must be read together with an interim report on the EU case against the US over aid to Boeing."  Id.  It is worth noting that while the U.S. accusations of Airbus subsidies reached as high as $200 billion, the EU counterclaim put Boeing's subsidies at about a tenth of that.

Given the confidential nature of the report and the likelihood that it will take some time before even the best leaks concerning its contents can be distinguished from pure speculation, a few preliminary remarks can be made concerning the dispute and possible outcomes:

  • The closest analogies which can be drawn to the Boeing/Airbus case are the disputes involving Brazilian aircraft manufacturer Embraer and Canada's Bombardier.  Despite findings that both had violated WTO subsidy rules, neither were adversely impacted and government assistance continued.  There is no evidence this will not be the case with Airbus and Boeing as well.
  • Boeing hopes that the a ruling against Airbus will dissuade EU Member States from injecting new launch aid into the company so that it can produce its new A350 widebody passenger jet.  The new aircraft is intended to compete with Boeing's long delayed "Dreamliner."  However, judging by statements coming from the European Commission, it appears they are treating the present ruling as an independent matter and will continue with the launch aid plans.
  • Given the size of the ruling, the EU will have plenty of avenues available for appeal.  The dispute could continue well into 2013 and that doesn't even account for any possible action the U.S. may take if it loses on the EU's counterclaim.  Additionally, the U.S. Trade Representative's Office has said that it will pursue a complaint against the new round of pending launch aid if it goes forward.  In short, this quarrel could be far from over.
  • Unfortunately, this dispute is coming to a head at a time when the Doha Round of Trade Negotiations appears to have been handed a new lease on life.  Given the fragility of the talks and the fact that no meaningful progress will be made without substantial U.S. and EU involvement, having two of the world's leading trade powers in the midst of a high-profile, highly politicized dispute could be detrimental to the talks' survival.
  • The world trade system has taken some noticeable hits over the last several years.  The initial freeze-turned-collapse of Doha, the worldwide economic downturn, and a new rise in protectionism have weakened global trade and even spurred some to cast doubt on the future of the WTO.  Arguably, now more than even, international trade needs a shot in the arm that renewed Doha talks could provide.
  • At some point soon, the U.S. and EU will need to come together to reach a new consensus on what is to be done with their respective aircraft manufacturers.  Given the capital-intensive nature of these enterprises, a tight reading of the WTO's rules (specifically the Agreement on Subsidies and Countervailing Measures) could do more harm than good.  Paragraph 28 of the Doha Declaration on Negotiations identifies the Subsidies Agreement as one which is in need of clarifications.  Perhaps this dispute will provide a fresh impetus to make some.
  • As a final point, the U.S. and EU should not rule out revisiting their abandoned bilateral agreement on civil aircraft manufacturing.  Under a fresh bilateral, both sides could set new rules for State subsidies to their respective "national champions" which accounts for the current nature of the aircraft manufacturing sector and allows innovation to proceed without hampering competition.  Neither company is going away.  What must be decided is whether their operations from here on out will confer real benefits to the world community in the form of cutting-edge products or if they will become the basis for a needless, counterproductive, and potentially destructive trade war between two of the world's economic giants.

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