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Archive for Thursday, March 31, 2011

Boeing received $5 billion in illegal subsidies, WTO report finds

March 31, 2011

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— Boeing Co. got a $5.3 billion boost from illegal state and federal government subsidies to develop its 787 Dreamliner and other commercial aircraft, a World Trade Organization panel found in a report issued Thursday.

The ruling was hailed as a landmark by the European Commission and helped even the score in the messy and long-running trade dispute between the United States and European Union over government funding of airliner development, a major source of exports in both continents.

U.S. officials also were upbeat because half of the aid questioned by the WTO, or $2.7 billion, was deemed impermissible, meaning it will eventually have to be withdrawn or otherwise remedied. In a separate ruling last year, the WTO determined that Boeing rival Airbus SAS had received about $20 billion in impermissible subsidies from four European governments.

"The World Trade Organization has vindicated the U.S. and the position we've taken for the last 20 years: that subsidies the Europeans have given to Airbus dwarf anything the U.S. has given to Boeing," U.S. Trade Representative Ron Kirk told reporters Thursday.

The federal government already had eliminated export-related tax breaks that accounted for $2.2 billion of the Boeing total. The WTO panel deemed the remainder, including incentives provided by the states of Illinois and Kansas, permissible because they didn't harm Airbus.

But analysts weren't certain when, if ever, the dueling sides will address the prohibited incentives singled out by WTO judges. The findings could be overturned or whittled down as the cases wind through the WTO dispute settlement process. And the threat China poses to the Boeing-Airbus large-aircraft duopoly also could spur the two sides to hammer out a new trade deal.

"Regardless of the final outcome, there's little reason to doubt that the U.S. and EU will ultimately seek a political solution," said Brian Havel, director of the International Aviation Law Institute at the DePaul College of Law. "Both parties have too much invested in their respective aircraft manufacturing industries to let this matter ride out much longer."

The dispute started in 2004, as the two sides sparred over government funding for Airbus' A380 super-jumbo jet and as Boeing was finalizing plans for the Dreamliner. The U.S. withdrew from a 1992 bilateral agreement and accused the EU of illegally subsidizing every commercial jetliner developed by France-based Airbus. The Europeans countered by claiming that Boeing enjoyed substantial hidden state and federal support.

"The U.S. began this dispute in 2004 and now finds itself with a crystal-clear ruling that exposes its long-running multibillion-dollar subsidization of Boeing through federal and state programs as illegal," Karel De Gucht, EU trade commissioner, said in a prepared statement.

The prohibited Boeing subsidies, while relatively small, caused substantial damage to Airbus, leading to a loss of $45 billion in sales, while helping to lower Boeing's costs to develop the 787, the panel determined.

"Finally the truth emerges: Boeing has received and continues to receive subsidies, which have a significantly greater distortive effect than the reimbursable loans to Airbus," said Rainer Ohler, Airbus' head of public affairs and communications.

U.S. officials trumpeted the WTO's earlier finding that four European governments had provided far greater illegal aid to Airbus: $20 billion, $15 billion of which was launch aid that was prohibited because it was loaned to the aircraft manufacturer at below-market rates.

The impermissible aid to Boeing, which will have to be remedied if the WTO ruling stands, includes $2.6 billion in research and development grants from NASA, $112 million in research and development funding from the U.S. Defense Department and $16 million in tax credits provided the plane-maker by the state of Washington from 2004 to 2006.

The WTO panel determined that about $11 million of the $25 million in incentives promised by Illinois and Chicago to land Boeing's headquarters in 2001 was "actionable," meaning it violated trade rules. But the aid was permissible because it didn't cause competitive harm to Airbus.

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