Boeing

History of Airbus Subsidies

For the last decade, the U.S. has pursued a case before the World Trade Organization (WTO) against illegal subsidies provided to Airbus by four European governments, which have given the European plane maker an unfair advantage in the global market. With government help, Airbus has captured 50% of the global commercial airplane market .

The European Union has used delay and stall tactics to continue evading global trade rules by filing their own cases against the United States and ignoring WTO compliance rulings against their illegal practices. They’ve lost badly at every twist and turn, and now it’s time for them to address the $22 billion in illegal subsidies the WTO ruled against them and meet their global trade obligations.

How Illegal Launch Aid to Airbus is Hurting Boeing Workers

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 has appealed that ruling. Once the appellate process concludes later this year, the USG expects to be in a position  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.

Airbus received $22 billion in impermissible subsidies; Boeing received about $3.25 billion.

The EU's Latest Move

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. 

What’s at Stake