Logistics

US-EU aircraft subsidy row reaches the skies

G. Srinivasan New Delhi | Updated on April 01, 2011


The multi-billion dollar subsidies being doled out by the US and the European Union (EU) to Boeing and Airbus for the manufacture of large civil aircraft (LCA), have become a bone of contention in the trans-continental trade between the two biggest champions of free trade.

The latest victory in the war of attrition was won on Thursday by the EU when it established before the panel of the World Trade Organisation (WTO) that Boeing obtained “massive subsidies from multiple US Government sources” which enabled Boeing to develop new aircraft, in particular the 787 ‘Dreamliner,' at much lower cost than would otherwise have been the case.

Subsidies

In its report released in Geneva, the WTO panel upheld the EU's claims that “some of the measures maintained by the States of Washington, Kansas, Illinois and their municipalities, the NASA aeronautics R&D measures, some of the US Department of Defence (DoD) aeronautics R&D measures and the FSC/ETI and successor act subsidies, constituted specific subsidies.” It reckoned the aggregate amount of these subsidies by the US to Boeing between 1989 and 2006 to have been at least $5.3 billion.

The panel argued some of the specific subsidies while constituting prohibited subsidies, caused adverse effects to the EU's interests in the form of “serious prejudice, finding that the effect of these subsidies was displacement and impedance (or threat thereof) of Airbus large civil aircraft from third country markets, significant price suppressions and significant lost sales.”

First complaint

It may be noted that this is a second complaint, as the first complaint was made by the US against the EU, in which, the WTO panel in last June concluded that “the US had established that the effect of the specific subsidies found was displacement of imports of US LCA into the European market, displacement of exports of US LCA from the markets of Australia, Brazil, China, Chinese Taipei, Korea, Mexico and Singapore and likely displacement of exports of US LCA from the market of India.”

However, the panel said that the US had not established that the effect of specific subsidies found was significant price undercutting or price suppression or price depression. More pertinently, the panel concluded that the US had not established that, through the use of subsidies, the EU and certain EU member States cause or threaten to cause injury to the US domestic industry. The EU appealed to the Appellate Body on this report, the proceedings of which would be wrapped up in the first half of 2011.

Support to Boeing

Meanwhile, the EU said in Brussels on March 31 that in contrast to the panel in the Airbus case, this panel quantified the amount of WTO-incompatible subsidies granted to Boeing. It said support to Boeing has been and continues to be in the form of non-repayable grants or free access to Government facilities, while in the Airbus case, the most important instrument, Repayable Launch Investment (ILI), was deemed to be WT0-compatible in principle “with the subsidy element being, for certain cases, solely the difference in conditions provided in comparison to other repayable commercial financing.”

It is interesting to note that since 2004, the EU and the US have been contesting at the WTO their Government's respective support to their aerospace industries and prior to this, the US and EU Government support to their aircraft producers had been regulated by the so-called “Bilateral EU-US agreement on trade in Large Civil Aircraft.” But in October 2004, the US quite unexpectedly and unilaterally announced its withdrawal from the 1992 pact and filed a challenge at the WTO of all EU support ever granted to Airbus, even as it previously consented to this support. In turn, the EU, too, filed a parallel wager in the WTO.

Substantial harm caused

With the latest panel report on the second complaint lodged by the EU indicting the US and quantifying its various WTO-incompatible subsidies to Boeing, the EU Trade Commissioner Mr Karel De Gucht said, “these subsidies have resulted in substantial harm to EU interests, causing Airbus to lose sales, depress its aircraft prices and unfairly lose market share to Boeing” besides imposing “detrimental costs to EU industry.”

As the US has the option to appeal against this panel report, the fact remains that the key players in the WTO are locked themselves in a trade row on subsidies they lavish on LCA. Ironically, this is happening when the marathon Doha Round of trade talks, running its tenth year, make little progress in breaking the logjam on the farm subsidies row between the developed and developing countries, trade policy analysts quip.

>geeyes@thehindu.co.in

Published on April 01, 2011

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