WTO Rules European Subsidies to Airbus Illegal

 - September 22, 2016, 11:57 AM

The World Trade Organization (WTO) issued a ruling on Thursday against the European Union (EU) and several members states confirming certain U.S. claims of improper subsidies to Airbus in the latest chapter of a 12-year-old saga over government aid for civil aircraft. The principal subsidies covered by the ruling include launch aid for the development of virtually all Airbus's airliner projects and certain equity infusions by France, Germany, Spain and the UK. The ruling also covers certain infrastructure measures provided to Airbus, namely, the lease of land at the Mühlenberger Loch industrial site in Hamburg, the right to exclusive use of an extended runway at Bremen Airport, regional grants by the German authorities in Nordenham, and Spanish government grants and regional grants by Andalucia and Castilla-La Mancha in Sevilla, La Rinconada, Toledo, Puerto Santa Maria and Puerto Real. 

The WTO found that the subsidies displace exports of Boeing single-aisle and twin-aisle airplanes from the European Union, Chinese and Korean markets and Boeing single-aisle airplanes from the Australian market. It also upheld an earlier determination that the subsidies caused Boeing to lose sales campaigns involving the A320 (Air Asia, Air Berlin, Czech Airlines and EasyJet), A340 (Iberia, South African Airways and Thai Airways International), and A380 (Emirates, Qantas and Singapore Airlines).

For its part, Airbus welcomed wording in the ruling that the European airframer says also upholds the spirit of and method by which the EU partnered with the large civil aircraft industry as acceptable under international trade law.

“The public-private partnership model is a winner: a win for state investors who reap rewards in addition to full repayment of loans, and a winner on compliance at the WTO,” said an Airbus spokewoman. “The U.S. started this dispute claiming Airbus was receiving illegal subsidies, but the WTO decided otherwise. Airbus Reimbursable Launch Investment (RLI) is a legal instrument. The U.S. grants and tax breaks are not." 

According to the spokeswoman, the EU will eventually prevail on appeal. “We will address the few still remaining points indicated by the report in our appeal,” she said. “As a point of fact Airbus and its European partners met their obligations to withdraw any subsidy elements or eliminate adverse effects. The only open point is final ruling on the interest rate benchmark for the government loans. We are confident that we will win that point on appeal. The panel recognizes that, not only is the Airbus instrument totally legal, but terms of the A350 agreements are very close to perfect—only tiny tweaks required. What a contrast to Boeing which has laid the biggest egg in subsidy history with what is expected to be the very first finding in any of our cases of a prohibited subsidy for 777X.”

Next, the WTO plans to rule on alleged improper U.S. subsidies to Boeing. In the meantime, the U.S. airframer is declaring victory in a dispute that dates back to October 2004.  

“Rather than comply with their WTO obligations to remedy the $17 billion in past subsidies provided to Airbus, the WTO found that EU Member States provided Airbus with new illegal launch aid—reportedly almost $5 billion so they could launch the new A350,” said Boeing in a statement. “The WTO was explicit: ‘[I]t is apparent that the A350 XWB could not have been launched and brought to market in the absence of LA/MSF [Launch Aid].’” The WTO previously found that essentially no model of the entire Airbus fleet would exist today—including the A300, A310, A320, A330, A340 and A380were it not for the illegal subsidies provided by the European governments.”

“The day of reckoning for launch aid has finally arrived,” said Boeing executive vice president and general counsel J. Michael Luttig. “Prior WTO rulings found that Airbus itself likely would not even exist without illegal launch aid, equity infusions, and infrastructure support. Today the WTO went further and found that Airbus’ existence continues to depend upon illegal, trade-distorting government subsidies in the form of launch aid, most recently for the A350 XWB—which reportedly totals almost $5 billion.”

On the prospect of a similar ruling against the U.S., Luttig stressed that the European case against the U.S. bears no relationship to Thursday’s ruling and that the EU needs to act now. “The cases are separate and distinct,” he said. “The EU lost this compliance case for the simple reason that it did nothing to remedy its massive subsidies which have had profound effects on the commercial airplane market. Whatever happens in the European cases against the United States, launch aid and other illegal government support for Airbus will now come to an end.”