Boeing

Boeing Statement on WTO Ruling

WTO determines EU has refused to honor WTO rulings on massive European subsidies to Airbus
U.S. authorized to seek billions in retaliatory tariffs on imports from Europe

CHICAGO, May 15, 2018 — The World Trade Organization (WTO) today in its final decision found that the European Union (EU) has failed to honor multiple previous rulings and has provided more than $22 billion of illegal subsidies to European aircraft maker Airbus. After examining this case for more than a decade, the WTO has determined the EU must end its unfair business practices and remedy the ongoing harm caused by the illegal subsidies.

This landmark ruling by the WTO Appellate Body is the final decision in this case, which was initiated in 2006. Today’s decision ends the dispute and clears the way for the United States Trade Representative (USTR) to seek remedies in the form of tariffs against European imports to the United States.

The authorized tariffs are likely to total billions in duties per year, unless and until Airbus addresses the illegal subsidies it received from European governments for its most recently launched airplanes. It is anticipated that U.S. tariffs will be authorized up to the amount of annual harm this market-distorting tactic is causing. Tariffs could be scheduled as early as 2019. This is expected to be the largest-ever WTO authorization of retaliatory tariffs.

“Today’s final ruling sends a clear message: disregard for the rules and illegal subsidies is not tolerated. The commercial success of products and services should be driven by their merits and not by market-distorting actions,” said Dennis Muilenburg, Boeing chairman, president and CEO. “Now that the WTO has issued its final ruling, it is incumbent upon all parties to fully comply as such actions will ultimately produce the best outcomes for our customers and the mutual health of our industry. We appreciate the tireless efforts of the U.S. Trade Representative over the 14 years of this investigation to strengthen the global aerospace industry by ending illegal subsidies.”

The U.S. government, with Boeing’s full support, has complied with WTO rulings stemming from the two cases the EU brought against the United States. One case has already ended in favor of the United States, and in the other, the vast majority of the allegations the EU made against the United States and Boeing were dismissed. Where there were narrow rulings against U.S. practices, they have been fully addressed to the WTO’s satisfaction.

Just one finding against the United States now remains before the WTO, which concerns a Washington state tax measure. It is under appeal and should be decided later this year or in early 2019. Boeing believes that ruling will be reversed, but if not, Boeing has pledged to do whatever necessary to come into full compliance in the interest of upholding rules-based trade, which is essential to fairness and the future prosperity of the global aerospace industry.

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WTO Decision Summary

What just happened?

The WTO Appellate Body just rejected the EU’s final appeal, finding that European governments have failed to fully comply with past WTO rulings, which found that EU governments provided $22 billion in illegal subsidies to Airbus. The WTO has determined that these illegal subsidies are market-distorting and have ongoing harmful effects on the U.S. aerospace industry, necessarily resulting in an aerospace industry that is smaller and supporting many fewer jobs than would be the case under fair competitive conditions.

What happens next?

The appellate ruling opens the door for the U.S. government to pursue sanctions against European exports to the United States unless the Airbus-sponsoring governments come into compliance.

What must European governments do?

They must eliminate any ongoing harm from past subsidies, and they must end the illegal practices going forward. The most egregious subsidy is launch aid, which is European government support for the development of Airbus airplanes. Launch aid significantly reduces development costs and risk for Airbus programs. As the WTO has found, neither Airbus nor a single one of its airplane programs from the A300 to the A350 would even exist without launch aid. Nothing like launch aid exists in the United States.

How does the sanctions process work?

The U.S. Trade Representative will notify the WTO that it intends to pursue sanctions and seek its approval of both the magnitude of the tariffs to be imposed and the targets of those tariffs. The total amount of the tariffs will reflect what the WTO agrees is the harm the subsidies are causing the United States.

How long will it be before tariffs are imposed?

Tariffs could be in place by the spring of 2019 unless EU governments comply.

What is the status of the EU’s counter-cases?

The EU filed two counter-cases alleging U.S. subsidies to Boeing. One has been dismissed entirely. The vast majority of the allegations made in the other case likewise have been dismissed, and the United States has addressed the handful of rulings that went against it. There is now only one finding against the United States, concerning a Washington state tax incentive. That issue remains under appeal.

If the U.S. loses that appeal, will Boeing support compliance actions?

Boeing strongly agrees with the U.S. Trade Representative (USTR) that there are compelling reasons for the Appellate Body to overturn that lone finding and rule that the United States has complied across the board. But if that doesn’t happen, Boeing will support whatever steps are required to come into compliance.

How will the outcome of the EU case affect the U.S. case against European subsidies?

It will have no effect on the EU’s obligation to comply with the WTO’s ruling against the $22 billion of illegal subsidies Airbus has received. The cases are totally separate from a compliance standpoint.

Airbus received $22 billion in impermissible subsidies; Where there were narrow rulings against the U.S. and Boeing, we fully complied – just $700 million remains outstanding and under appeal.

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 within the next 12 months.  In the EU counter-case, there is only one finding against the United States, and that finding is under appeal.  An appellate ruling on that case is expected in the first half of 2019.

 

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 finding against the United States, and that finding is under appeal.  Boeing strongly supports the U.S. position that the appeal should result in a finding of total compliance.  Moreover, we have said many times that if further action is needed we will support whatever must be done to comply with WTO rules. 

 

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