WTO ruling gives Boeing Co. victory over Airbus
By Tom Raum and Donna Borak
Associated Press
9/5/2009

WASHINGTON — In a victory for Boeing Co., the World Trade Organizationsided with the American aviation giant Friday in finding that European
countries have provided billions in illegal subsidies to chief competitor
Airbus.

The preliminary ruling by the Geneva-based WTO, although expected to be
challenged by the European Union, could begin to shake up the $3.2 trillion
global market in new jetliners, in which Airbus has overtaken Boeing. The
next shoe to drop will be a decision that may well go the other way: The
international trade body will rule next year in an Airbus challenge to what
it sees as unfair U.S. government support for Boeing.

In addition, because the WTO ruling only covers past aid, the EU has
signaled that its governments will press ahead with funding for the A350.

"It would be almost ridiculously arrogant for the EU to say that they would
continue to provide aid irrespective of whatever ruling the WTO might
make," U.S. Trade Representative Ron Kirk had told Bloomberg News before
the ruling.

Friday's decision confirms a complaint by the United States, filed in 2004,
that "all Airbus aircraft have received illegal subsidies and that these
have caused material harm to Boeing," said Rep. Norm Dicks, D-Wash., among
those briefed by U.S. trade officials on the yet-to-be released decision.

Another Washington state lawmaker, Democratic Rep. Jim McDermott, said, "We
learned in a WTO ruling that Airbus has enjoyed an unfair competitive
advantage over Team Boeing for decades."

However, European officials who were briefed had a somewhat different take
on the ruling from American lawmakers and officials, suggesting that many
of the complaints lodged by the U.S. had been dismissed. They also said the
kind of easy-term loans provided by European governments to Airbus were in
some instances seen as a permissible way to partner.

Boeing is based in Chicago but has extensive operations in the Seattle
area.

The WTO finding was the first step in a process that could take years to
produce a final result.

The organization doesn't have the power to impose sanctions itself, but it
can allow a nation that has been harmed to raise tariffs or impose other
barriers to imports from an offending country or countries.

And that wouldn't be limited to aircraft. It could also include, for
instance, purses, sweaters or French wines. The amount of such tariffs
could be high enough to offset the damages done by the illegal practices.

While this was a clear victory for the U.S., analysts suggested it
reflected not the current world, in the grips of global recession, but the
business world as it stood five years ago when open trade was the rule and
anticompetitive, protectionist practices generally denounced.

Since then, hundreds of billions in dollars and euros have been spent in
government subsidies and takeovers of failing banks and automakers here and
in Europe in an effort to combat the worst global downturn since the Great
Depression.

Furthermore, other countries, including China, Japan and Brazil, are busy
expanding or developing their domestic airline industries.

The American case protested "launch aid," easy-term loans that were
extended primarily by France, Britain, Spain and Germany to help Airbus
develop new jetliners as it overtook Boeing as the world's top producer of
commercial airplanes.

"The United States has always maintained that the European governments have
provided unfair subsidies to Airbus that harm U.S. interests," said Deborah
Mesloh, deputy assistant U.S. trade representative in Washington.

"Today's ruling begins the process of creating an environment for
establishing clearer rules on aircraft subsidies," said John Veroneau, an
international trade lawyer who was general counsel of the U.S. Trade
Representative office in 2004 when the case was initiated.

However, the EU counter case against the United States — with a ruling
expected in about six months — could find that the U.S. was also engaging
in illegal trade practices in helping Boeing, including contracts awarded
by the Pentagon and NASA.

"We have a good case against them, and they have a serviceable case against
us," said Jeffrey Schott, a trade expert with the Peterson Institute for
International Economics.

Both disputes in the Boeing-Airbus rivalry are over what is projected to be
a $3.2 trillion global aviation market over the next 20 years.

Sen. Maria Cantwell, D-Wash., said the case "sets an important precedent
that must be respected by all countries with an emerging commercial
aircraft industry." She also said it should discourage European governments
from going ahead with an additional $4.6 billion in proposed subsidies for
Airbus to develop its new extra wide-bodied A350 airliner, which will
compete with Boeing's long-delayed 787 Dreamliner.

Financing for the A350 airliner was not part of the U.S. case before the
WTO.

Wall Street seemed unsurprised by the WTO ruling. Wayne Plucker, manager of
Frost & Sullivan's North American aerospace research, said well-developed
areas like the U.S. and the EU "don't really need subsidies."

The U.S. should require Airbus to divest itself from any illegal subsidies
used to finance bids for government contracts, including its offer for a
$35 billion aerial refueling tanker for the Air Force, said Paul Shearon,
secretary treasurer of the International Federation of Professional and
Technical Engineers.

Airbus' parent company, European Aeronautic Defense and Space Company N.V.,
is partnered with Northrop Grumman Corp. in competing against Boeing on the
tanker deal.

Both Boeing and Los Angeles-based Northrop have been competing for years
over the tanker contract that could surpass $100 billion over two decades.