WTO report said to condemn Boeing subsidies

Plane maker Boeing received unfair subsidies from the US government, a World Trade Organisation report said recently, according to Boeing’s European rival Airbus.

The two companies disagreed over the extent of the subsidies outlined in the report, which was delivered to the US government and the EU Commission but not released publicly.

Airbus said the report showed Boeing had received at least $5bn in illegal subsidies and was only able to launch its 787 Dreamliner with such support. Boeing denied the assertions.

The US and EU, both trading superpowers, have been fighting cases against each other in the WTO for more than six years over each other’s subsidies for large passenger aircraft.

Boeing’s stock, a Dow component, showed little reaction to the WTO report. Shares were up just eight cents at $69.31.

“I don’t think there’s clarity as to what this really means. It seems to be a lot of noise,” said Alex Hamilton, managing director of EarlyBirdCapital, a boutique investment bank.the dispute as Airbus and Boeing battle for the $1.7trn market.

The report is still confidential, but even Boeing acknowledges that the WTO has backed some of the EU claims. However, the two sides disagreed strongly over the amount of condemned Boeing subsidies and how they compared with those given to Airbus.

The findings came as a US Air Force decision was expected within weeks on whether to award Boeing or Airbus parent EADS a contract worth $25bn to $50bn for refueling tankers. But EarlyBird’s Hamilton said the WTO report was likely to have little impact on the US government decision.

Both plane makers have supporters in the US Congress, as Boeing would build and finish the tanker in Washington state and Kansas while Airbus would assemble it in Alabama.

Senator Richard Shelby of Alabama said that the WTO report “unquestionably states that Boeing received significant government subsidies prohibited by the WTO.”

“Today’s decision should end Boeing supporters’ attempt to derail the tanker competition by arguing that the trade dispute is one-sided,” Shelby said in a statement.

On the other side, Senator Pat Roberts of Kansas said: “Attempts to skew this ruling in the EU’s favour are an exercise in distraction. Once this ruling is made public in the near future, the sunshine will refute much of the claims by the EU and truly indicate where the market-distorting benefits flowed.”

With no end to the litigation in sight, both sides have periodically called for a negotiated end to the dispute, as EU Trade Commissioner Karel De Gucht did in September when an interim version of the report was issued.

His spokesman said the report confirmed those initial findings, in comments suggesting Brussels was not keen to raise the stakes, or wanted to play down a previous WTO ruling that condemned its own support for Airbus.

“This solid report sheds further light on the negative consequences for the EU industry of these US subsidies and provides a timely element of balance in this long-running dispute,” spokesman John Clancy said in a statement.

One EU diplomat said a political solution was preferable.

“Given the state of the global airline industry today, a political agreement is important for both sides of the Atlantic,” the diplomat said.

The ruling, like the interim report, was handed only to the parties. It will not be published for several weeks while being translated into French and Spanish.

US Trade Representative Ron Kirk’s office said it could not provide detailed comment now as the report was confidential.

“Despite that the EU has publicly commented on the report, at this time we will simply say that the United States is confident that the WTO will confirm the US view that European subsidies to Airbus dwarf any subsidies that the US provided to Boeing,” spokeswoman Nefeterius McPherson said.

Massive subsidies
Airbus said the report would show Boeing had received billions of dollars in illegal subsidies, depriving Airbus of $45bn in sales, an indication of what the EU could seek in sanctions if the case moved to retaliation.

But Boeing disputed Airbus’s figures and said the ruling would not require any change in policy or practice as far as Boeing was concerned.

WTO experts found last year that Airbus received illegal export subsidies from European governments and both sides have appealed against that ruling.

Appeals involving prohibited export subsidies are supposed to be dealt with in 60 days under WTO rules, but this case is so complicated that the WTO’s appellate body has said it will not come to a conclusion until some time this year.

Boeing says the research and development grants it received pale into insignificance beside the support for Airbus.

In the Airbus case, WTO judges found the company had been able to launch a series of passenger aircraft only thanks to the government support and called for an end to export subsidies.

Both sides have an interest in clarifying the rules for how governments can facilitate the development of new aircraft in a fair manner.

It could take until much later this year for the appeals process in both cases to run its course, but the two governments, aware that Brazil, Canada, China, India, Japan and Russia have en eye on the market, are eventually likely to negotiate a settlement.