US vs. EU. Airbus

1
US vs. EU. Airbus Boeing Subsidies Case.
(Pending)

• Kurt Kasun
• Tarek Khedr
• Michelle Lammers
• Sandrine Mabya

2
US vs. EU Airbus Boeing

• Largest Legal Case in WTO history.
• US feels money given to Airbus is illegal.
• EU feels Boeing has benefited from unfair support

3
Commercial Jetliners

• Chicago Based Boeing
• France Based Airbus
• Only two manufacturers of large commercial
  jetliners.

4
Why Such a Big Deal??

• Control of the market
• Illegal Subsidies
• WTO is being tested
• Canada and Brazil

5
The 1992 Agreement

• Under the 1992 agreement, the US had recognized
  Airbus, founded in 1970 with support from several
  European countries
• On October 6, 2004, the US complained to the WTO
  that the European governments have broken trade
  rules with its government loans to Airbus,
  including 3.2 Billions for the super jumbo A 380

6
The U.S. Boeing Case

• The U.S. claimed in its WTO complain last October
  that Airbus had received more than 15 Billion in
  government loans amounted to illegal subsidies
  under global trade rule.
• The US and EU decided last December to try for a
  settlement of the aircraft issue outside the WTO
  to avoid bruising their 400 Billion-a-year trade
  relationship.

7
The U.S. Boeing Case

• As part of the agreement, both US and EU accepted
  that neither carrier will seek launch aid during
  three-month negotiations.
• The launch aid was spelled out in the 1992
  agreement. Under the deal, the European
  governments could finance one-third of the cost
  of any aircraft Airbus develops
• However the negotiations will have to settle the
  tricky question of which of these subsidies will
  be prohibited, actionable or permitted

8
The U.S. Boeing Case

• Unfortunately, the US has withdrawn because of
  the attempt from the EU to broaden the scope of
  negotiations
• At stake may well be Boeing 22- Billion-a-year
  commercial aircraft business, which for the first
  time in 2003 sold fewer passenger jets than
  Airbus

9
The U.S. Boeing Case

• Airbus overtook Boeing in 2003, becoming the
  first manufacturer in the worlds 50 billion
  airliner market.
• The U.S. argued that the growth of the Airbus
  indicates that there is no more need for aid that
  was justifiably at the startup industry

10
The U.S. Boeing Case

• Europeans have justified subsidies to Airbus as
  necessary to an infant industry
• Boeing has long asserted that Airbus has an
  unfair advantage because it gets government money
  and now that it does not need money because it
  took the lead in the commercial aerospace
  business in 2003 delivering 305 commercial planes
  while Boeing delivered 281,whereas Boeing in 1999
  had delivered more than 600 planes.

11
The Airbus Side

• In October 2004, the United States said Airbus
  received more than 15 billion in government
  loans since 1967, helping it overtake Boeing as
  the world's largest airplane maker by sales.
• According to U.S. estimates (also hotly
  disputed), Airbus has used 15 billion in
  subsidies to build its global aircraft market
  share from 30 percent to near 60 percent.

12
The Airbus Defense

• Airbus has been receiving "repayable launch aid"
  in the form of commercial loans that it pays back
  to the government as it sells airplanes
• The Airbus launch aid causes less trade
  distortion than the Boeing aid, according the
  industry analysts

13
Airbus Challenges Boeing Subsidies

• RD subsidies 20B
• From 1992, Boeing has received RD grants worth
  more than 20 billion, mostly through NASA and
  the Pentagon.
• Tax break subsidies 3.2B
• Washington state will give Boeing tax incentives
  worth 3.2 billion over 20 years.
• Infrastructure improvement subsidies 4.2B
• Washington State has dedicated 4.2 billion in
  subsidies for physical improvements of Boeing
  plants and infrastructure.

14
Boeing Subsidies, cont.

• Foreign Sales Corporation 200M annually
• Up to now, Boeing receives about 200 million a
  year through a federal tax loophole called the
  Foreign Sales Corporation program, which has been
  ruled in violation of WTO rules.
• Japanese Launch Aid 1.6B
• Boeing has received Japanese launch aid of 1.6
  billion thus far to build the wings for its new
  787 Dreamliner.
• In contrast to the E.U. investment in Airbus,
  none of these subsidies needs to be repaid

15
Request for Consultations

• Possibly precipitated by politics of 2004 US
  presidential election
• US files first in early October, followed hours
  later by the European Communities counter filing
• Both site subsidies inconsistent with obligations
  under the SCM Agreement and GATT 1994
• US principally sites launch aid
• EC sites
• State and local subsidies
• NASA, DOD, and other RD subsidies
• FSC/ETI subsidies

16
Détente in January

• On January 11 both sides agreed to negotiate the
  phasing out of subsidies over a 90-day period
• Agree to create fair market competition for the
  development and production on large civilian
  aircraft made in the US and the EU
• Efforts motivated in part to sooth relations in
  preparation for Bushs European tour

17
Ides of MarchSpell High Drama

• On March 18 the spurious details of contentions
  discussions between Zoellick and Mandelson are
  made public
• The US went public first
• The EU wants to conclude the talks quickly so it
  can start on the A380 to compete against Boeings
  new 787
• USTR voices displeasure over EU seeking to
  broaden the terms of the January agreement
• EU wants to include Japanese subsidized
  production of Boeing 787 fuselage
• EU wants to bring FCS into the deal
• US also accusing EU of backtracking on commitment
  to cut subsidies
• EU wants Cast-Iron guarantee

18
Are Cooler Heads Prevailing?

• March 21, Mandelson
• The ball is in Americas courtIm looking for
  clarification of the US position.
• US threats are premature and unnecessary.
• Zoellick From my last conversation with
  Mandelson, I do not see the probability of
  reaching fulfillment in the time we set forth.
• The clock is tickingone week away from the
  deadline

19
Resolution Scenarios

• Agree to extend consultations beyond 11 APR
  deadline
• WTO oversee further consultations in Geneva
• Either side could ask for a panel of judges to
  hear the case
• Dynamics make an out-of-court settlement unlikely
• High tech, high-paying jobs at stake for both
• Boeing in tough shape rocked by scandal and
  losing market share
• Airbus has been a tremendous successful
  industrial policy for the EU
• Perhaps they could agree to binding arbitration
  by a third-party (John Major and Frank Carlucci
  or Cap Weinberger)
• Odds are WTO would find both guilty and levy
  sanctions on both
• Teal Group analyst that the outcome may depend on
  who is able to show it has been hurt

20
Broader Issues

• Outsourcing becoming increasingly global
• Much of the Boeing 787 is being constructed with
  the JADC
• Both Airbus and Boeing outsource to Asia and
  Latin America making the case global and raising
  the stakes
• Large portions of engineering for Boeing handled
  by Russian BDC
• Concerns that the conflict will infect the rest
  of the trade agenda, Doha Round
• If sanctions are levied and ignored, the
  credibility of the WTO would be damaged
• 400 Billion trade relationship between the US
  and EU is at stake

21
Sources

• Boeing chief hopeful on U.S., EU subsidy talks,
  Thomas Mulier, Bloomberg News, February 18, 2005
• Not an Issue for the WTO Peter Mandelson,
  Washington Post, 1 April 2005
• The Big Blowout Why the Airbus-Boeing case
  could wreck the WTO, and how to stop it, Jeffrey
  E. Garten, Newsweek International, April 4, 2005
• An ill-timed spat, The Economist, March 26,
  2005
• Why the Airbus-Boeing case would wreck the WTO,
  and how to stop it, Jeffrey E. Garten, Newsweek,
  March 27, 2004
• See you in court, The Economist, March 16, 2005
• Russians rally to Boeings cause, Nick Cook,
  Financial Times, April 2, 2005
• Boeing-Airbus talks fall apart, James Wallace,
  Seattle Post-Intelligencer, October 1, 2004
• EU Demands Clarification on Boeing-Airbus,
  Constant Brand, AP, March 21, 2005

22
Sources

• Boeing vs. Airbus Time to Escalate, Stanley
  Holmes, BusinessWeek Online, March 22, 2005
• US Seeks Return to Boeing-Airbus Talk, Dow
  Jones Newswires, March 21, 2005
• Battle over Boeing, Airbus shows thorny
  relations, Dow Jones Newswires, March 21, 2005
• U.S.,E.U. Take Boeing, Airbus Dispute WTO. The
  Seattle Post- Intelligencer, October 7,2004
• Blustein, Paul. U.S. Files Grievance Over Airbus
  With WTOE.U. Responds With Boeing Complaint.
  October 7, 2004
• International Trade U.S., E.U Complain of
  Aircraft Subsidies. October 28,2004
• http//www.bloomber g.com/apps/news