In a victory for American trade interests, the World Trade Organization rebuked the European Union for issuing government subsidies to European companies, giving them an advantage in international contract bidding. In what is being called a “stinging rebuke,” the WTO charged that the EU’s assistance constituted an illegal export subsidy. They requested that EU figure out a way to help European companies without adversely affecting American companies or discontinue the subsidies altogether.
The ruling has particular significance for American company Boeing, which has been locked in a bidding war for large civil aircraft with a European company receiving these very subsidies, EADS. Boeing, which filed the case in the WTO, contended that EADS was being given an unfair advantage when bidding for American contracts since they were able to undercut American companies; the EU would provide a “loan” to EADS allowing them to bid less, with the agreement that EADS would repay the loan as planes were sold. The result? European companies were able to underbid American companies, take jobs from American workers and send them to Europe. Today, the WTO agreed that this was an unfair practice.
The Wall Street Journal puts it bluntly:
This has been obvious for years to most fair observers, but with the WTO ruling Germany, France, Spain and the U.K. now have a strong legal and political reason to end the practice of lending money to Airbus on easy terms to fund the development of new aircraft. The practice dates to Airbus’s beginnings as an multi-government-owned consortium, but the aircraft maker is no longer a fledgling and now splits the market for large civil aircraft nearly equally with Boeing. With soaring deficits and a debt crisis that is still creating turbulence on the Continent, politicians have better uses for taxpayer money than subsidizing a successful company.
In each of the five individual cases involving Airbus models, the WTO found that these subsidies led to a loss of sales and exports for Boeing. U.S. Trade Representative lawyers stated that the key finding in this case was that without these subsidies, Airbus would not have been able to develop or produced when they were or with their current slate of features. The A-330, the base airplane EADS intends to use for the tanker is, unsurprisingly, one of the aircraft models that the EU subsizided. Boeing has already contended time and again that their plane is superior but had feared that EADS’s unfair competitive advantage would stall their bid, which could mean uncertainty for Boeing’s American workforce.
This case may not be over, however. Because of the significance on trade and compeitive advantage, the EU could tie up the case in the WTO for the next several years. The European Union may decide as early as next week whether they intend to appeal the ruling. If they lose on appeal, the EU will have to renegotiate the loans with Airbus or Airbus will have to pay the loans back. If they fail to take action, the US can recoup its losses by imposing trade tariffs on European goods.
The court also has yet to consider EU’s case against the US, which, as the WSJ points out, is thin, relying primarily on the contention that any US defense contract is, by default, a subsidy to the industry. If the EU wins that case, the two parties could go to the negotiating table.
In all, both Boeing and the United States Trade Representative consider this a victory.
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