December 2004/January 2005 
Volume 03, Issue 8 
Industry Wrap

Subsidies debate continues

Aircraft spat leads to information exchange


Subsidies debate continuesIn the latest step in the ongoing dispute over subsidies to large civil aircraft manufacturers, members of the U.S. Trade Representative's office and other government agencies exchanged information with their European Union counterparts in Geneva on Nov. 4 and 5.

According to the official complaint filed with the World Trade Organization, the United States alleges that

  • European governments provided loans to Airbus on noncommercial terms (i.e., at much better terms than Airbus could get in the commercial market).
  • European states provided government funding for A380- specific infrastructure improvements (runway extensions, factory facilities, etc).
  • Airbus has benefited from European governments' forgiveness of debt, including substantial amounts of its "repayable" launch aid.
  • Airbus has been directly aided by significant grants and equity infusions from European governments. The EU countersuit filed with the WTO includes the following assertions:
  • The financial incentive packages passed by the states of Washington and Kansas for the development of the 7E7 constitute a subsidy to Boeing.
  • Boeing Commercial Airplanes benefits significantly from research and development contracts from NASA and the U.S. departments of Defense and Commerce.
  • Boeing illegally benefits from tax breaks under the now-repealed Foreign Sales Corporations tax program as well as from research and development tax credits.

Since the Geneva meetings were an opportunity for each side to seek answers to questions about competing claims, neither government characterized the outcome Both sides also have publicly stated their preference for continuing the consultations. It is clear, however, that significant divisions remain between the governments—and the media.

In the months following the initiation of the aircraft subsidies debate in May by Boeing President and CEO Harry Stonecipher, opinion leaders in the media were predictably split in their assessments, with European opinion generally favoring Airbus and U.S. opinion generally favoring Boeing.

"Recently, however, there has been a notable shift of European thought, not fully to the Boeing position, but certainly to a more neutral posture," said Ted Austell, Boeing vice president for International Trade Policy. "Increasingly, recognition is growing in Europe that a mature and profitable company like Airbus no longer needs to be propped up by government funding."

Not everyone in Europe holds that view, though. Airbus CEO Noel Forgeard has said repeatedly that his company plans to ask for $1 billion or more in launch aid for its competitor to the 7E7, tentatively called the A350, despite his claim that Airbus could finance the plane without launch aid.

Furthermore, many in Europe claim the U.S.-EU 1992 Agreement on Trade in Large Civil Aircraft is still in effect even though the U.S. government terminated the agreement "for cause" on Oct. 6. EU spokespeople reiterate this claim frequently, saying that the United States' leaving the agreement is "illegal."

"Without the cover of the 1992 agreement, it is inconceivable that Airbus could successfully solicit new launch aid it might seek for the A350 or any other new program," Austell said. "We believe that the launch aid that has been historically disbursed just does not conform to international trade rules. That puts Airbus and its sponsor governments in a vulnerable position."

Despite clear differences on the issue of subsidies, the United States is committed to continuing talks in good faith; Europe maintains that it is as well. The early November meetings were not designed to achieve negotiated breakthroughs but were simply the first step in the World Trade Organization's consultation procedure; the two sides are continuing to exchange information. Under WTO rules, the consultation process lasts at least 60 days, but the process may continue as long as both sides see progress.

Boeing said it will continue to work with the U.S. Government to promote the successful outcome of this continuing and challenging issue.


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