economics

May 11, 2010

WTO Decries Airbus Aid Report calls $20 billion in EU state loans an illegal export subsidy; Boeing ruling looms

Filed under: Uncategorized — ktetaichinh @ 3:18 pm
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By JOHN W. MILLER and MATTHEW DALTON

BRUSSELS—The World Trade Organization finalized its tough condemnation of European subsidies for civil aircraft maker Airbus, finding that some $20 billion in preferential government loans for the A380 passenger jet and other models constituted an illegal export subsidy, according to people familiar with its findings.

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AIRBUS
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The WTO said Airbus got preferemtial loans to develop models including its A380 jet, which is seen at the company’s factory in Blagnac, France, in January.
AIRBUS
AIRBUS

The final report on support for Airbus, a unit of European Aeronautic Defence & Space Co., was sent Tuesday afternoon to European Union and U.S. trade officials from WTO headquarters in Geneva. It is confidential, but people familiar with its findings said it mirrors the tough preliminary report the WTO published in September.

The ruling’s immediate consequence is that it clears the way for the EU to file an appeal. EU officials said they would contest the decision but wouldn’t give a timeline for doing so. It also shifts the focus to a WTO ruling on U.S. aid for Boeing Co. due before August.

In the longer term, the decision could force EADS to repay billions of dollars in past aid or risk allowing the U.S. to raise import tariffs in retaliation on goods imported from Europe. It could also give the U.S. and Chicago-based Boeing more ammunition to contest future funding for Airbus.

Airbus stressed that the WTO didn’t rule out so-called launch aid in principle. “Airbus has brought competition, ensuring healthy choice for our customer airlines,” said Maggie Bergsma, an Airbus spokeswoman.

But a U.S. industry expert familiar with the report said the WTO found that while launch aid wasn’t necessarily illegal, the loans provided to Airbus were on terms that weren’t available from commercial financial markets, a violation of international trade rules.

EU officials said they are looking forward to the WTO’s preliminary ruling on more than $20 billion in aid to Boeing. That report will come out in June or July, said WTO officials.

“People shouldn’t jump to conclusions or be too hasty in claiming any type of victory at this stage,” said John Clancy, spokesman for the European Commission, the EU’s executive arm. “A fuller picture will only emerge with the release of the interim report in the EU case against subsidies to Boeing, which we expect to be issued in the coming months.”

“The measures that the EU claims amount to subsidies to Boeing are very different in nature and effects from the subsidies provided to Airbus,” said a spokeswoman for the U.S. Trade Representative. “We are confident that the separate panel considering the Boeing matter will conclude that the United States is not providing WTO-inconsistent subsidies to Boeing.”

Boeing said, “This is a powerful, landmark judgment and good news for aerospace workers across America who for decades have had to compete against a heavily subsidized Airbus. Airbus and its sponsor governments continue to reaffirm their commitment to using subsidized launch aid to fund the next Airbus airplane, the A350. We urge them to change course and fully comply with the WTO’s clear ruling.”
[AIRBUS]

The U.S. filed its case against the EU in 2004, complaining about $20 billion in loans from European governments. Airbus used the money to develop new airplane models.

The loans were issued at preferential rates with an enviable condition: If the planes didn’t make money, Airbus didn’t have to pay back the totality of the loans. The EU quickly retaliated with a case against the U.S.

In its case against Boeing, the EU alleges the company received billions in tax breaks from U.S. states and grants for defense research from the U.S. government. The WTO’s decisions in both cases could toughen rules for state aid for airplane makers, which need to spend billions to develop new passenger jets. Brazil, China, Canada, Russia and Japan are developing jets that could one day compete with Airbus and Boeing. State aid, however, has become less taboo since the financial crisis prompted governments all over the world to bail out rusting industries like automobile makers.

According to a 1992 deal signed by the U.S. and EU, both sides were allowed to help their aircraft makers. Airbus surged forward in the following decade, gaining so much market share that the U.S. withdrew from the agreement and filed its WTO complaint. It alleged that Airbus had basically cheated by relying so much on launch aid.

U.S. and EU officials have discussed the possibility of a negotiated settlement. That remains an option, but not until the WTO rules on Boeing, EU officials say.
—Daniel Michaels contributed to this article.

Write to John W. Miller at john.miller@dowjones.com and Matthew Dalton at Matthew.Dalton@dowjones.com

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