The US-EU dispute over subsidies for Airbus and Boeing is moving to a conclusion that could reshape civil aircraft development. Is there still an off ramp?
When the US government took its dispute over Airbus subsidies to the World Trade Organisation in October 2004, Boeing was lagging its European rival in airliner orders, deliveries and backlog.
Today, the US manufacturer is ahead in orders and catching up on deliveries, Airbus has financial difficulties and the WTO dispute has slipped down the headlines.
But the rival cases over subsidies for Airbus and Boeing are continuing on their inexorable paths to rulings that are widely expected to find funding mechanisms on both sides of the Atlantic to be illegal under WTO regulations - findings that may not alter the dynamics of the Airbus versus Boeing battle, but which could change forever the way commercial aircraft programmes are financed.
What could be decided over the next year is of keen interest to the six nations who have filed third-party submissions to the WTO. While some of those countries are more concerned about the effect any rulings might have on industries other than aerospace, for some - including Brazil, Canada and China - there is direct interest in the potential impact on their plans for civil aircraft development.
The significance for China of any WTO ruling on state aid for large civil aircraft development has come to the forefront since the Beijing government in March gave the go-ahead to a plan to design and build airliners with more than 150 seats, to compete with Airbus and Boeing.
Trade experts believe the Chinese announcement adds urgency to the need for new rules to govern financing of commercial aircraft development.
At the WTO in Geneva, meanwhile, the legal process has moved more slowly than expected as the complexities of handling two near-simultaneous cases of this scale have stretched resources.
While the US Trade Representative (USTR) and European Commission filed their rival subsidies cases within days of each other in October 2004, the dispute settlement process only really got under way in 2006 and the final reports of the two panels will now come about six months apart - in December this year for the US case and in June next year for the European case (see table).
The US versus EC panel, DS316, held its first meeting in March and, following that two-day hearing, both sides filed their rebuttals on 25 May. The panel's second meeting is scheduled for 24-26 July, after which the panellists will retire to deliberate. The first meeting of the EC versus US panel, DS353, is now scheduled for 26-27 September, and the second hearing for 15-16 January next year.
This means there are now six months between the final decisions of the two panels - 19 December this year for the US case and 16 June next year for the EC case. "The US case is approaching closure, and the issue will be in the hands of the panellists in the not too distant future," says a US source close to the dispute, adding: "The US versus EC case is one cycle away from the panellists. The EC versus US case has three or four major events still to go."
Confident it will win its case against launch aid for Airbus, the US side views the gap between panel decisions as an incentive for the Europeans to negotiate a settlement rather than go for six months under the cloud of a negative ruling while it waits for a positive outcome in its case against the USA.
"The EC is potentially looking at an adverse ruling in December - six months is a long time to have an adverse claim hanging over them," says another US source.
The European side dismisses this logic. "We are quite relaxed about the six-month interval because we have a robust defence and a robust case against the USA," says a senior EC source, adding: "I doubt that this issue of a six-month interval weighs heavily on the minds of the panellists."
The European Union is also sanguine about the delays. "Litigation runs its course," says the source. "That does not mean to imply we want the case delayed. We remain interested in securing a swift resolution, but one that is based on a high-quality decision."
After years of complaining about European launch aid for Airbus, the USA finally got the chance to present its case in a February submission to the DS316 panel.
The USTR estimates Airbus has received $15 billion in government launch aid, saving the European manufacturer more than $100 billion in borrowing costs at commercial rates. In addition, the USTR says EU member states have subsidised Airbus by funding infrastructure projects at its manufacturing sites.
In its response, the EC says reimbursable launch investments are legal under the 1992 EU-US bilateral agreement on trade in large civil aircraft, from which the USA unilaterally withdrew in 2004, arguing it had been superseded by the WTO's rules on subsidies. The EC defends the terms of the interest-bearing loans and says Airbus has repaid more than €7 billion ($9 billion) - or 40% more than it has received from EU governments since 1992.
In its March first submission to its own panel against the USA, DS353, the EC presented its case that Boeing will have benefited from about $23.7 billion in illegal subsidies between 1984 and 2024.
This includes $15 billion in NASA and US Department of Defense research and development funding $4.9 billion in tax breaks, infrastructure projects and subsidised bonds from Washington and Kansas states and $2.1 billion from an export sales tax break previously outlawed by the WTO.
Rebutting US claims that launch aid and other subsidies have let Airbus undercut Boeing prices in contests, the EC maintains Boeing aircraft are subsidised to more than 2% of their sale price compared with a maximum of 1% for Airbus aircraft.
The US side is expected to rebut these claims strongly when it submits its written response in the EC case at the end of this month.
While the war of words continues at the WTO, parallel efforts to negotiate an "out of court" settlement have made little progress. "Not much has moved," says a US source, adding the "dynamics are being retarded" by the slower than expected implementation of Airbus's Power8 restructuring plan.
The US source speculates that, as the roll-out of Power8 restores confidence in Airbus's competitiveness, the governments "might be more inclined to give [the EC negotiators] more direction on what is acceptable in the new competitive framework".
A US trade official said in April that efforts to agree a solution have been hampered by the absence of a negotiating mandate for the EC, and he predicted the final report of the USA's dispute panel would "facilitate discussions". But the European side remains confident. "We have not conceded any claim the USA has made and have put forward a large number of claims in our own offensive case," says the senior EC source.
Meanwhile, China and the other countries with large civil aircraft ambitions will have to wait. Despite the importance of the outcome to the industry as a while, the WTO panels are focused in the specifics of the US-EU dispute. "What the panellists have to do is apply the law," says the EC source. "It is not their role to have the future of the industry in the global sense at the forefront of their minds."
- China's large airline plans could face WTO challenge
- Airbus versus Boeing at the WTO: A special report
- US details case againbst Airbus subsidies at WTO
Source: Flight International