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More about the WTO Boeing-Airbus Case

The WTO case pitting the world's two largest commercial aircraft companies against each other could come to an end this summer.  The European Union and the United States submitted dueling complaints to the WTO in the fall of 2004.  An initial tribunal ruling from the World Trade Organization dispute body is expected soon.  Neither the United States nor the European Union shows any sign of backing down and negotiating a compromise in the high stakes conflict. 

Any ruling will have implications for state and local governments in the United States that provide tax and financial incentives designed to attract or retain industry.  Critical to state and local governments is whether the WTO will take up the 'legality' (WTO-compliance) of state-local incentive programs.  The European Union alleges that state and local governments in Washington, Illinois and Kansas provided billions of dollars in subsidies to Boeing in violation of the WTO agreement on Subsidies and Countervailing Measures (SCM).

According to the U.S. Office of the Trade Representative,

Over its 35 year history, Airbus has benefited from massive amounts of EU member state and EU subsidies that have enabled the company to create a full product line of aircraft....Every major Airbus aircraft model was financed, in whole or in part, with EU government subsidies taking the form of ‘launch aid’ - financing with no or low rates of interest, and repayment tied to sales of the aircraft. If the sales of a particular model are less than expected, Airbus does not have to repay the remainder of the financing. EU governments have forgiven Airbus debt; provided equity infusions; provided dedicated infrastructure support; and provided substantial amounts of research and development funds for civil aircraft projects.

USTR claims that EU subsidies to Airbus are “prohibited export subsidies” and “actionable subsidies adversely affecting the United States”, in violation of the SCM agreement.

The European Union counters:

The core of the EU's challenge is the lavish R&D support provided by the US Department of Defense and NASA through various means, as well as Boeing-specific support provided at state and local levels, such as subsidy packages tailor-made for Boeing in the states of Washington, Kansas and Illinois. The support clearly aims at weakening Airbus' position and competitiveness and boosting that of Boeing. Although the US tries to dismiss the challenges using smoke and mirrors, US federal law makers, high-ranking officials, and local politicians have all acknowledged the vital role this support plays for Boeing.

With respect to state and local subsidies to Boeing, the EU alleges that:

  • The State of Washington gave Boeing $3.4 billion in tax incentives; the City of Everett gave Boeing $67.5 million in tax reductions; and state and local governments in Washington provided another $395 million in other subsidies including workforce training, infrastructure improvements, and assumption of legal costs, among others.
  • The City of Wichita, Kansas by issuing industrial revenue bonds provided tax breaks to Boeing worth $783 million; and, the State of Kansas pays the interest on bonds financing aircraft production facilities worth another $122 million to Boeing.
  • The State of Illinois, the City of Chicago, and Cook County provided tax incentives and direct payment of relocation and other costs to Boeing worth $24.8 million.

General Content
WTO Decision Expected Any Day on EU Challenge to Alleged State and Local Subsidies for Boeing
The world's two largest commercial aircraft companies, Boeing and Airbus, are pitted against each other in World Trade Organization litigation. The European Union and the United States submitted dueling complaints to the WTO in the fall of 2004. Each party complains that the other has violated the WTO agreement on Subsidies and Countervailing Measures (SCM)...

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