EU to File Counterclaim Against Boeing at WTO

"So, a state in the united states, which has it's own tax code independant of the federal tax code, decides to give a company an incentive to build a factory (thus increase jobs and tax revenue for the state) in the state, and this is equivalent to national government(s) (and the EU itself) "loaning" a company money to create a product it could not otherwise afford to create / sell - and most importantly, does not need to be paid back if the product flops??"

The matter is actually FAR more complicated than that. One would probably have to read tons of documents and research all the different types of tax deductions, subsidies and cross financing at Airbus AND Boeing for a year or so, only to be able to make up one's mind.

The point is: EU loans for Airbus are in accordance with the 1992 agreement between the US and the EU and thus LEGAL, but this agreement does not mirror the present power balance between Airbus and Boeing any longer.

Besides the tax incentives, Boeing has artificially lowered the development costs of the 787 by outsourcing a lot R&D to subcontractors, who in turn get subsidies from their respective home countries, in this case mostly Italy and Japan. So, yes, indirectly even Boeing might receive EU subsidies.

The problem is further complicated by the fact that the subsidies Boeing receives in Japan are NOT covered by the 1992 agreement, and might thus be illegal. By WTO standards, actually the whole 1992 agreement is illegal, as it doesn't hold up to free trade standards.

Then there is the question inhowfar tax incentives are subsidies and if loans to Airbus at a national level are acceptable, as it was the case with Great Britains intention to offer Airbus loans if the EU isn't allowed to.

There are two possible solutions to these problems:

1.) Abolish all kinds of subsidies altogether. That isn't realistic because both Airbus and Boeing are heavily invested in military development, and in this field complete transparency remains elusive.

2.) Limit subsidies and for those subsidies that are unavoidable find a new mode of comparing the different types of subsidies.

Both the US and the EU try to play their own game at the moment:

The US is intent on ending EU loans now while delaying a new agreement to replace the one of 1992. The goal: To prevent Airbus from developing the A350 in the envisioned timeframe.

The EU signals willingness to talk, but only if the old mode remains in place until a solution that covers all areas of dissent is reached. But such talks would last for years, probaby as long as it takes to develop the A350 or longer.

The outcome at the WTO is uncertain: There are three likely possibilities:

1.) The WTO could vote in favour of Boeing, because it doesn't like the concept of the European loans, while generously overlooking Japanese subsidies.

2.) The WTO could vote in favour of Airbus, reinforcing the 1992 agreement by which the loans for Airbus are legal, but some of the subsidies Boeing receives (from e.g. Japan) are not.

But the most likely outcome:

3.) The WTO will decide against both Airbus and Boeing, because neither of the companies plays by WTO standards. Both the US and the EU will ignore the WTO ruling, will curse each other for a few years and will try to reach a new agreement (probably without European loans or direct Japanese subsidies) to replace that of 1992 a few years later, which will in turn also ignore all of the WTO principles. Why? Because they are powerful enough to do so, because THEY CAN.

"It is also equivalent to "coercing" other foreign governments to purchuse the airbus (see India, Thailand etc...)?"

Both the US and the EU are experts at that game. Actually the US threatened major problems at the WTO for India, while France threatened to block a possible permanent UNSC seat for India in case of great reform at the UN. In this case France's threat was somewhat hollow as Germany (some 40% of Airbus are in German ownership) firmly supports the idea of Indian UNSC membership (and India in turn supports Germany's bid for the same).

To believe one side was "more evil" in this game is naive.

"Ask yourself, if Airbus has only had comercial sucesses,
why are they unable to secure the needed capital by borrowing from a bank? Furthermore, what is the purpose of the "subsidies" that Airbus receives, to promote "growth and job creation" or to help compete with Boeing?"

They are not unable to secure the needed capital from banks. Indeed, Airbus does take up credits regularly in the same fashion as Boeing, because the EU loans don't cover all the R&D costs. And then of course, Airbus does make money with their products.
Airbus COULD do without EU loans, just as Boeing could build its plant in a state that demands higher taxes. But why, when you don't have to?

The main purpose of the subsidies was indeed twofold: To promote "growth and job creation" and to help a start-up company survive it's first product cycles.

MY PERSONAL OPINION: Airbus is no start-up anymore. So it's time to renegotiate the 1992 agreement. But please, this time put everything on the table. Because otherwise both companies will start a race for, let's say, Chinese subsidies, if those aren't covered in the new accord.

Although I am an aviation nut, and wouldn't mind the US government or the EU footing the bill for all those new, cool airliners, I believe that a true, untempered with market for airliners is in the best interest of both sides.

So please, dear US negotiators, also include Boeing in your demands for a reduction of subsidies - and please, dear EU negotiators, stop playing hide and seek: A new agreement is inevitable, so start working on one.

"European aerospace giant has received $15 Billion in illegal aid"

Airbus begged for this issue to stay out of the WTO. In fact, they offered to reduce their illegal aid by 33% which is not exceptable- 100% or nothing.

This morning an EU official (Mandelson) said that the EU will turn this issue into a "full-blown trade war" his words.

The US should take him at his word and annonce that no A380 will be allowed on US soil until this issue is resolved.

It's been a long time in waiting, so let the trade wars begin.

Holtz
JeffersonRepublic.com

"When you're a military contractor, it's hard to tell what's a subsidy, and what's a military contract."

What? A contract obligates the contractor to provide services and/or products. A subsidy obligates the contractor to provide ... uh ... nothing. The subsidy may eventually be returned in the form of taxes, but how is this "hard to tell" from a product or service?

If Congress wants to subsidize Boeing, all it's got to do is pad one of its contracts.

very very good post.

They will find a new agreement simply because the WTO ruling will take longer as Airbus needs to build the A350.

Both sites are not really interested in a WTO ruling. They could have it years ago.

i also believe it´s a more a marketing campaign for the 787 than anything else.