Brussels, 12 March 2012
World Trade Organisation findings on US subsidies to Boeing
On 12th March, the WTO Appellate Body ruled that US subsides granted to Boeing were incompatible with international trade rules.
What did the Appellate Body say?
The Appellate Body confirmed that Boeing received billions in subsidies from the US, which have substantially damaged Airbus by reducing sales volumes and prices of its aircraft.
The US has been found to have granted WTO-incompatible funding to Boeing amounting to at least US$ 5 billion and up to 6 billion during the period 1989 – 2006. Subsidies to be granted after this date, notably those provided by Washington State, are estimated to be worth at least $ 3.1 billion
The report provides clear and solid findings which confirm the EU's claims in all the main areas of complaint, including.
NASA research and development support programme funding ($2.6 billion between 1989 & 2006)
Department of Defence research and development funding ($ 0.3 – 1.2 billion between 1991 & 2006)
Washington State (subsidies $ 3.1 billion for 2006 to 24)
Foreign Sales Corporation ($2.2 billion between 1989 & 2006)
City of Wichita subsidy ($ 476 million between 1989 & 2006)
The ruling confirmed that these subsidies severely damaged the commercial position of Airbus in particular by losing specific orders to Boeing, artificially surpressing prices for Airbus aircraft.
Where does the Appellate Body go further than the previous WTO ruling?
First, the Appellate Body reversed the WTO Panel's findings regarding subsidies provided by the City of Wichita in Kansas ($476 million). The Panel had ruled that it was not appropriate to cumulate the Wichita subsidies with the Washington and Foreign Sales Corporation subsidies when assessing economic damage to Airbus. The Appellate Body determined that the Wichita subsidies are significant enough in magnitude and sufficiently connected to the B-737 to be cumulated with the tax subsidies in the 100-200 seat market. Therefore, the Wichita subsidies now figure among the US implementation obligations.
Second, the Appellate Body also reversed the panel's finding that the Washington tax subsidies should not be cumulated with the research and development subsidies in the 200-300 seat market. This is a further demonstration of the negative effect of the subsidies from different levels of the US government on the performance of Airbus.
What does this mean for current and future subsidies?
The findings are significant as they not only identify past support but provide a clear and solid ruling that the same measures should not be continued into the future.
The Appellate Body ruled that the WTO-incompatible subsidies granted to Boeing Between 1989 and 2006 amounted to at least US$ 5 billion. Subsidies identified in the dispute to be granted after this date (notably the Washington tax subsidies) are estimated to be worth about $3.1 billion). The US is obliged to remove these. It appears that other US subsidies will continue to be available to Boeing e.g. support from South Carolina and other federal programmes.
The Appellate Body also did not reverse the panel´s finding on a multiplier effect for the adverse effects of the NASA and Department of Defence Research and Development, which could be considerably in excess of the face amount of the subsidy found.
How does this relate to the Airbus case?
Both of these cases are closely connected but the Boeing case has somewhere fallen behind the Airbus case in terms of timing.
The Appellate Body report on the Airbus case came out on 18 May 2011 and the EU has fully implemented the findings of the panel and the Appellate Body on 1 December 2011.
In the Airbus case, the EU presented a significant package of measures adopted over the last few months to comply with its WTO obligation. The EU would obviously expect the same level of commitment from the US to comply with their obligations.
Hasn't the EU also subsidised its aerospace industry?
There is a significant difference in the way the EU and US supported their industries:
the EU provided repayable loans, which are fully paid back by Airbus and where any subsidy element is only a small interest rate gap;
the US provided non-repayable funding of billions of dollars, as confirmed by the Appellate Body today.
The two types of support cannot be directly compared. The Appellate Body described NASA/DOD research and development subsidies as a "joint venture" where one partner, Boeing, got essentially all the benefits of the common research. This is different from the EU's approach where EU Member States acted like an investor who expects (and gets) its money paid back.
What happens next?
The EU will put the report up for adoption at the meeting of the WTO Dispute Settlement Body (23 March). The US will then have six months to bring itself into compliance with the findings by withdrawing the subsidies or their adverse effects.
The EU expects full compliance from the US with the rulings in the Boeing case. This will enable both parties to prepare the ground for closing the long-lasting dispute
For more information
WTO Dispute Settlement