Friday, April 01, 2011

Business: EU Wins Key WTO Case Proving Boeing Received Billions in Subsidies From United States

The European Commission welcomes the WTO Panel report published today, which found that billions of dollars in U.S. Federal and State subsidies granted to Boeing are illegal under WTO rules. This landmark ruling has clearly confirmed the EU's position on all of its main claims, notably that between 1989 and 2006 the U.S. Federal and State governments granted WTO-incompatible subsidies to Boeing amounting to at least $5.3 billion. Planned future subsidies are estimated to be worth between $3 to $4 billion.

"This WTO Panel report clearly shows that Boeing has received huge subsidies in the past and continues to receive significant subsidies today. The U.S. began this dispute in 2004 and now finds itself with a crystal clear ruling that exposes its long-running multi-billion dollar subsidization of Boeing through Federal and State programs as illegal," said EU Trade Commissioner Karel De Gucht. "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. The detrimental costs to EU industry from this lengthy and onerous subsidization run into billions of euros. We therefore welcome the WTO Panel's report and call on the U.S. Government to take the appropriate steps that may assist to achieve a mutually agreed solution to this dispute."

The report is supported by clear and solid findings from the Panel covering each of the main sources of U.S. subsidies, including: (i) $1.3 - $2 billion in R&D program funds granted by NASA and the U.S. Department of Defense (DoD) to Boeing; (ii) $1.5 billion from NASA and DoD "general support"; (iii) $ 2.2 billion in Foreign Sales Corporation (FSC) export subsidies; and (iv) Washington State tax breaks valued up to $4 billion for the 2006-24 period.

All of these subsidies violate WTO Rules since they constitute actionable subsidies that cause adverse effects to EU and Airbus interests. The Panel also confirmed that the federal FSC/ETI tax breaks for Boeing are prohibited subsidies, which according to WTO rules must be withdrawn by the U.S. without delay.

These massive subsidies from multiple U.S. Government sources have enabled Boeing to develop new aircraft, in particular the 787 "Dreamliner," at much lower costs than would otherwise have been the case.

In contrast to the Panel in the Airbus case, this Panel quantified the amount of WTO-incompatible subsidies granted to Boeing. Support to Boeing has been and continues to be in the form of non-repayable grants or free access to government facilities. In the Airbus case, however, the most important instrument—the Repayable Launch Investment (RLI)—was considered WTO-compatible in principle, with the subsidy element being, in certain cases, the sole difference in the conditions provided compared to other repayable commercial financing.

Background to the WTO Aircraft Cases

Since October 2004, the EU and U.S. have been contesting at the WTO their Governments' respective support to their aerospace industries. Both WTO challenges relate to alleged illegal WTO support to Airbus and Boeing respectively over a 20 to 30 year period.

Prior to these WTO challenges, U.S. and EU government support to their aircraft manufacturers had been regulated by the "Bilateral EU-US Agreement on Trade in Large Civil Aircraft." This 1992 agreement allowed each party to provide a certain level of support to their respective aircraft industry. The agreement permitted the EU to grant the "Repayable Launch Investment" to Airbus, e.g. loans repaid with interest under terms specified in the agreement. The U.S. was allowed to provide a certain level of government financed R&D support to the U.S. aerospace manufacturer, Boeing. Annual meetings and regular exchanges of information took place to monitor compliance with the terms of the bilateral agreement.

On October 6, 2004, the United States quite unexpectedly and unilaterally announced its withdrawal from the 1992 Agreement and immediately filed a challenge at the WTO of all EU support ever granted to Airbus, despite the fact that the U.S. had previously agreed to this support.

The EU had little option other than to respond immediately with a parallel WTO challenge of U.S. government support to the U.S. aerospace industry (e.g. Boeing) by Federal, State and local authorities. This support included benefits to Boeing under the U.S. Foreign Sales Corporation Scheme, which the U.S. government had continued to provide, despite repeated findings that these subsidies violated WTO rules.

These two parallel WTO challenges, the Airbus case (DS 316: the U.S. challenge of EU support for Airbus) and the Boeing case (DS 353: the EU challenge of U.S. support to Boeing), although both were initiated on October 6, 2004, have followed different timetables due to a number of delays at the WTO. The WTO Panel made its report on the Airbus case public on June 30, 2010, whereas the Panel issued its final public report on March 31, 2011, on the Boeing case.

Because of the DS 353 Panel's delays, close to a year's gap exists between the two WTO proceedings. The EU has continuously expressed its dissatisfaction with this lag. On July 23, 2010, the EU appealed the Panel's findings in DS 316. These proceedings are expected to be completed during the first half of 2011.

For further information

Factsheet on the Boeing case DS 353:

Source: Delegation of the European Union to the United States