Friday, July 2, 2010

WTO Panel Report on Airbus

Blog readers interested in reading the 1,076-page WTO Panel Report, European Communities and Certain Member States--Measures Affecting Trade in Large Civil Aircraft, WT/DS316/R (June 30, 2010), can do so by following this link.

Media attention on the ruling has focused on its U.S. domestic implications, specifically the House and Senate measures which would force the Pentagon to take account of illegal subsidies when choosing to award lucrative defense contracts to aircraft manufacturers.  See, e.g., Christopher Drew, In Ruling, W.T.O. Faults Europe Over Aid to Airbus, N.Y. Times, June 30, 2010 (available here).  Some have expressed concerns that the legislation could hurt U.S. manufacturer Boeing.  The WTO is expected to issue its report on possible illegal subsidies to Boeing later this year.  However, it is important to keep in mind that the total amount of subsidies Boeing is accused of receiving--approximately $20 billion--is a fraction of the $200 billion Airbus was alleged to have received from EU Member States.  In the end, the WTO Panel reduced the amount to $20 billion and may push the amount down even further after it rules on the EU's forthcoming appeal.  There's every reason to expect that should the WTO Panel rule against Boeing, it too will reduce the amount of accused subsidization.  Even if the Pentagon is forced to take account of illegal subsidies for its contract awards, Boeing is likely to retain an advantage over Airbus in that respect.

The more interesting question is where do things go from here?  The U.S. and EU had a treaty governing trade in large civil aircraft until the U.S. denounced it in 2004.  Arguably, the best case scenario would be for the two sides to return to the negotiating table to hammer out a new agreement.  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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