Aviation Law Prof Blog

Havel on WTO Airbus Ruling

Prof. Brian Havel's thoughts on the freshly issued WTO report concerning State subsidies received by European aircraft manufacturer Airbus was featured in a Dow Jones Newswire story yesterday.  See Ann Keeton, Boeing Bests Airbus in Interim WTO Ruling, Dow Jones Newswire, Sept. 4, 2009 (available here).

From the story:

The decision Friday "is a big win on paper, but the reality is, the process of appeals is likely to go on until 2013," said Brian Havel, Director of International Aviation law at DePaul University's college of law.

In the meantime, Boeing and Airbus will carry on with business as usual. With government help, both companies plan to introduce new aircraft, the 787 for Boeing and Airbus' A350.

Havel said that, given the politics surrounding world trade, it's quite likely that the WTO's next ruling will go in favor of Airbus, more or less leveling the playing field.

WTO rulings potentially could help set a global framework for government funding of new aircraft. But, Havel said, international judicial rulings tend to be "squishy" and more open to interpretation than opinions handed down by a high court in the the U.S. or the E.U.

That means new competitors coming into the market, including China and Russia, aren't likely to think twice about how they subsidize their aircraft businesses, Havel said. "Russia doesn't even belong to the WTO," he added.

From a real-world perspective, Havel said, new commercial aircraft programs are so expensive that they must rely on some government backing.

Further thoughts from Havel on the dispute can be found in today's edition of the Chicago Tribune.  See Julie Johnson, U.S., Boeing Win 1st Round in Airbus Subsidy Dispute, Chi. Tribune, Sept. 5, 2009 (available here).

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. 

Can Doha Free Flight?

With word coming out that the Doha Round of World Trade Organization talks has recommenced, see Neelabh Chaturvedi & Prasanta Sahu, India Says Deadlock in WTO Talks Broken, Wall St. J., Sept. 4, 2009 (available here), readers of the blog may be interested in revisiting Brian Hindley's Trade Liberalization in Aviation Services: Can Doha Free Flight? (AEI Press, 2004).  More information on the book, along with a downloadable PDF copy, is available through the American Enterprise Institute's website here.  From the summary:

In this study, Brian Hindley discusses the General Agreement on Trade in Services (GATS) of the World Trade Organization (WTO) and the possibility of new international aviation rules. Traffic rights—which carriers can fly where—are the necessary core of any agreement, but they are expressly exempted from the disciplines of the GATS. This creates a unique opportunity for the industry to craft agreements outside the WTO, and then potentially negotiate special provisions for itself within the WTO.

But problems remain. The dispute-settlement process continues to frustrate many carriers, especially U.S. airlines, and it does not seem likely that WTO disciplines will quickly be applied to aviation. In the search for a new organizational basis for international aviation, however, the WTO cannot be ignored.

Havel on Boeing/Airbus WTO Dispute

Prof. Brian Havel was quoted in today's edition of the Chicago Tribune on the pending ruling from the World Trade Organization on whether European aircraft manufacturer Airbus received illegal State subsidies.  See Julie Johnson, WTO Report Due on Airbus-Boeing Subsidy Dispute, Chi. Tribune, Sept. 2, 2009 (available here).  Havel, who was interviewed for the story last Friday, believes that the ruling "will be the usual mixed result, an attempt to compromise and give both sides something to claim." 

This prediction appears confirmed by a breaking story from the Wall Street Journal that the WTO ruling will indeed find that Airbus received illegal subsidies, though, "the 1000-page [ruling's] wording all be ambiguous enough to allow the EU to appeal unfavorable findings."  See John W. Miller & Daniel Michaels, WTO to Rule Airbus Got Illegal Subsidies, Wall St. J., Sept. 2, 2009 (available here).

Some Recent Aviation Law Articles

Blog readers looking to stay up-to-date on the latest developments in aviation scholarship may wish to take note of the following articles related to regulatory issues:

• Ruwantissa Abeyratne, Aircraft Registration--Legal and Regulatory Issues, 34 Annals Air & Space L. 173 (2009)
• Donald R. Andersen, Recent Developments in Aviation Law, 74 J. Air L. & Com. 153 (2009)
• Martin Bartlik, The Extension of EU Emissions Trading Scheme to Aviation Activities, 34 Annals Air & Space L. 151 (2009)
• Mark Andrew Glynn, Birds of a Feather: Network Carriers Flock Together in Early Experiences of Transatlantic Open Skies, 34 Annals Air & Space L. 207 (2009)
• Peter C. Haanappel, The Impact of Changing Air Transport Economics on Air Law and Policy: A Short Commentary, 34 Annals Air & Space L. 519 (2009)
• Angela Klingmüller & Ulrich Steppler, EU Emissions Trading Scheme and Aviation:  Quo Vadis?, 34 Air & Space L. 253 (2009)
• Maarten Peeters, The New EC Regulation on Computer Reservation Systems, 34 Air & Space L. 227 (2009)
• Birgit Rumersdorfer & Sigmar Stadlmeier, The Ryanair/Charleroi Case Before the European Court, 34 Air & Space L. 309 (2009)
• Charles E. Schlumberger, The Oil Price Spike of 2008: The Result of Speculation or Early Indicator of a Major and Growing Future Challenge for the Airline Industry, 34 Annals Air & Space L. 111 (2009)
• Benjamin D. Williams, Comment, Playing the Slots: The FAA Gambles With Its Controversial Congestion Management Plan for New York's Busiest Airports, 74 J. Air L. & Com. 437 

The Perils of Europe's Airlines

A new report from late last week reveals that Europe's carriers are struggling right alongside their transatlantic brethren.  See Steve McGrath, European Airlines Rack Up Huge Losses, Dow Jones Newswire, Aug. 28, 2009 (available here).  From the report:

The global airline industry is suffering one of its worst ever downturns as the credit crunch and economic downturn have caused steep falls in passenger numbers and cargo volumes. The International Air Transport Association, or IATA, last month said it expected the industry to record accumulated losses of $9 billion in 2009, almost double its previous forecast, reflecting a rapidly deteriorating revenue environment.

European scheduled carriers have racked up huge losses in the first half of the year as a result of the downturn, and have responded by grounding planes and cutting costs and jobs. Low-cost carriers have fared slightly better, but still have seen profits fall sharply.