Bilateral bickering

A World Trade Organization (WTO) dispute settlement panel is to resolve the ongoing bickering between the US and the EU regarding aircraft subsidies.

In light of the European Commission’s unwillingness to halt new subsidies for large civil aircraft, and with EU Member States preparing to commit $1.7 billion in new risk-free launch aid subsidies for Airbus, the US has filed a request for the establishment of a World Trade Organization (WTO) dispute settlement panel to resolve the dispute.

“For almost a year, the US has tried to convince the EU to negotiate an end to subsidies for large civil aircraft,” said US Trade Representative Rob Portman. “So we were pleased when, on January 11th of this year, the EU agreed to a standstill on launch aid while we negotiated an end to subsidies. Unfortunately, at this point, the EU is no longer willing to hold off on launch aid, and has only proposed to reduce subsidies, not end them.”

“We continue to prefer a negotiated solution, and we would rather not have to go back to the WTO. But the EU’s insistence on moving forward with new launch aid is forcing our hand,” added Portman.

By requesting the panel, the US is providing time for the EU to reconsider its plans to provide new subsidies and an immediate halt to any further steps toward providing new launch aid, as well as a recommitment that the purpose of the negotiations is to end new subsidies for Large Civil Aircraft (LCA), and not merely to reduce them.

“We still believe that a bilateral negotiated solution is possible,” said Portman, who noted that out of the 100 concluded WTO cases involving the US since the WTO was founded, more than a third were satisfactorily resolved following negotiation. “But the negotiations won’t succeed unless the EU recommits to ending subsidies.”

The EU has reacted by bringing its own case against Boeing to the WTO. It says that the subsidies the US grants to Boeing distort trade to the detriment of Airbus and breach US obligations under the WTO. Consequently, the EU has decided to resume action in the WTO to confirm through a WTO panel the illegality of these subsidies too.

“I have found that the US wishes to talk only about the immediate ending of European launch investment for Airbus, and has never wanted to engage in a serious, even-handed discussion of the much larger subsidy programmes for Boeing. I am confident that launch investment for Airbus is compatible with WTO rules. I also believe that the US is vulnerable on what Boeing receives. I regret the action taken by the US in bringing this dispute between the two companies to the WTO, thereby turning their back on negotiation. However, I have great respect for Rob Portman, and he and I have agreed to work to ensure that this dispute does not affect our co-operation on wider bilateral and multilateral trade issues,” said EU Trade Commissioner Peter Mandelson.

The EU will focus its WTO case against the subsidies granted to virtually all Boeing programmes and in particular on the ‘unprecedented gifts’ from Washington State intended to help production of Boeing’s new B787 programme (these include tax exemptions, infrastructure and personnel subsidies worth more than $7 billion). Boeing also continues, for an undefined period, to receive some $200 million each year through a US federal tax subsidy called the Foreign Sales Corporation Program, despite the fact that it has already been ruled illegal twice by the WTO and has been abolished for most other US companies. Since 1992, Boeing has also benefited from research and development grants worth well over $20 billion, mostly through NASA and the Pentagon.

The EU says that the evidence it has collected clearly demonstrates that these massive subsidies to Boeing, amounting to a total of around $30 billion committed since 1992, violate the WTO Agreement on Subsidies and Countervailing Measures. They also violate a longstanding treaty between the US and the EU which governs the terms under which support to development of large civil aircraft can be provided (the 1992 EU-US Agreement on Trade in Large Civil Aircraft).