Boeing

Boeing Statement on WTO Ruling

CHICAGO, March 28, 2019 – The Boeing Company today released the following statement after a ruling by the World Trade Organization (WTO) Appellate Body in the DS353 case:

“The WTO has now rejected every allegation of unlawful subsidies to Boeing with the single exception of one measure—a Washington State business and occupancy (B&O) tax rate. Boeing has pledged from the beginning of this case to comply with the WTO’s rulings, and the B&O tax rate will be no exception. Boeing will support the United States and Washington State as they take steps necessary to fully comply with today’s ruling.

“We trust that our example will prompt Airbus and the European Union to immediately bring themselves into full compliance with the substantial rulings against these parties by the WTO."

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The U.S. Case against European Subsidies

In 2006, after attempts to negotiate a bilateral agreement, the U.S. Government (USG) filed a case with the World Trade Organization claiming Airbus had received $22 billion in illegal subsidies. U.S. officials estimated the economic benefit of those subsidies (in 2006 dollars) at more than $200 billion.

The biggest and most impactful of the subsidies is known as launch aid – highly subsidized loans to Airbus for the development of new products. Repayment is tied to airplane delivery targets, so typically does not begin until several years after a program is launched. What's more, the interest rates on the loans are significantly less than commercial lenders would charge, and in the event a product does not hit a pre-determined sales target, remaining loans on the product are forgiven.

Launch aid provides significant advantages to Airbus, among them artificially low cost of capital, lower program risk, and the ability to price its products lower than the competition. It also enables Airbus to introduce new products faster than it would be able to do otherwise. The continuation of launch aid and other European subsidies to Airbus poses a significant risk to America's ability to compete successfully in the global commercial airplane market.

The WTO Decision against European Subsidies

In June of 2010 the WTO ruled in favor of the United States on 80% of the total alleged subsidy amounts, and in May of 2011 a WTO appellate panel upheld all of the key findings of the earlier panel. The WTO ruled that Airbus had received $18 billion of illegal subsidies, including $15 billion of launch aid. Airbus-sponsor governments were given until December of 2011 to remove the harmful effects of all illegal subsidies. On September 22, 2016, the WTO confirmed the European governments not only failed to meet the compliance deadline to remedy $17 billion worth of past subsidies provided to Airbus, but that an additional $5 billion in illegal launch aid has since been provided to support the A350. In a last ditch effort, the EU appealed that ruling. The WTO rejected the appeal in May 2018, opening the door for the U.S. Government to initiate the WTO process for imposing tariffs on European exports to the United States to mitigate these violations.

The EU Counter-Claim

In retaliation for the U.S. WTO case against European subsidies to Airbus, the European Union brought a counter case against the United State alleging "indirect" subsidies to Boeing of $23 billion. The alleged subsidies focused on NASA and Department of Defense contracts with Boeing for research and development projects. It also challenged federal, state and local tax breaks, and government support for infrastructure used by Boeing.

The USG's defense against the charges noted that the NASA and DoD contracts in question were arms-length commercial transactions where Boeing was paid for research commissioned by the two government agencies. The USG further noted that the NASA research projects were undertaken for public benefit, and that the results and benefits were widely shared, including with Airbus. On the issue of tax breaks, the USG noted that the federal tax break on U.S. exports had already been eliminated, and it noted that the state and local tax breaks that were challenged are common economic development tools consistent with WTO rules. Similarly, the infrastructure projects named in the complaint comply with WTO rules because they are public in nature, and not for Boeing's exclusive use.

The WTO Ruling on the EU Claims

In March of 2011 the WTO dismissed 80% of the total subsidy amounts the EU claimed, and in March of 2012 a WTO appellate panel upheld the earlier ruling. The WTO found $3.25 billion in subsidies to Boeing, noting that an additional $2.2 billion subsidy claim in the form of U.S. export tax credits had already been eliminated. Of the remaining subsidies, $2.6 billion were related to NASA R&D programs, $154 million to Defense R&D programs, and $500 million to state and local tax breaks. The USG complied with this ruling by the September 2012 deadline set by the WTO. NASA and defense R&D contacts were adjusted to secure commercial rights for the U.S. government (per the WTO ruling). Some of the tax breaks had expired and therefore are no longer relevant, and those that remain in place are too small to have a meaningful competitive impact on Airbus. In 2017, the WTO confirmed that Boeing had complied with virtually all of its rulings in this case.

The EU’s Second Case

The EU in February 2015 brought another complaint to the WTO, this time on tax breaks the state of Washington recently enacted to attract new investment by aerospace companies in the state. In November 2016, the WTO dismissed the EU’s claims on seven of eight Washington state tax incentives in question. The EU prevailed only on the “claw back” provision of the state’s B&O tax reduction as applied to the 777X. The WTO declared the tax incentive a “prohibited subsidy” because of the way it was structured.

The USG appealed the ruling and on Sept. 4, 2017, it was reversed. The Appellate Body declared that Washington state tax incentives for aerospace investments are not a prohibited subsidy as the EU claimed. In so doing it brought an end to that case. No further appeal of the decision is available to the EU.

Myths vs. Facts on the U.S. – EU Aerospace Subsidy Dispute

Myth:  There is no end in sight for this dispute.

Fact:   The WTO has spoken for the very last time on the illegality of Airbus subsidies.  There are no more appeals left for the EU to pursue.  Now begins the process for the United States to impose billions of dollars in WTO-approved sanctions, which should be in place this year.

 

Myth: If the U.S. Government pursues sanctions, we will end up with a trade war.

Fact:   Not so—such sanctions are a part of the rules-based global trading system.  The USG has diligently followed a WTO dispute resolution process designed to bring about EU compliance, while avoiding the kind of unilateral actions that can lead to a trade war. It is a process the EU endorsed when the WTO was created, and that the EU has used many times to successfully challenge illegal trade actions by other countries, without sparking a trade war.

 

Myth: Boeing gets illegal subsidies too.

Fact:   The WTO has dismissed the vast majority of the EU’s claims on this subject. There is only one limited finding against the United States, and Boeing will support the United States and Washington State as they take steps necessary to fully comply with today’s ruling.

 

Myth:  Resolution of this dispute cannot happen until the EU and US cases have both run their course.

Fact:   Neither party’s obligation to comply with the rulings against them is contingent on the outcome of other cases. WTO cases are separate and distinct in that regard.

 

Myth: As evidenced by Boeing’s large backlog of orders and its record profits, Boeing clearly has not been harmed, nor is it competitively disadvantaged by the support Airbus receives from European governments.

Fact:   The WTO has examined this exhaustively and found, again and again, that Boeing has been harmed to a massive degree—billions upon billions of dollars in sales and market share lost to subsidy-created Airbus airplanes.  Boeing cannot be expected to stand by and do nothing, especially with emerging new competitors watching closely to see how this dispute turns out.

 

Myth:  Aerospace is different from other industries and requires some level of government support.

Fact:   Boeing has proven otherwise. We have financed all of our new airplane programs without the kind of government handout that launch aid represents.

What’s at Stake

What’s at Stake infographic