WTO condemns Boeing’s non-compliance and new subsidies

  • WTO: U.S. failed to comply with rulings on massive illegal subsidies provided to Boeing
  • Today’s WTO compliance panel report finds Boeing subsidies causing Airbus to lose hundreds of aircraft sales with an estimated value of US$ 15-20 billion
  • Illegal subsidies to Boeing have, over time, resulted in over US$100 billion in total lost sales for Airbus
  • Harm to Airbus will only increase if dispute is pushed out further, in case of likely U.S. appeal

The United States has failed to comply with WTO rulings in the more than decade-long ongoing transatlantic battle over commercial aircraft subsidies. This was reported today by the World Trade Organization’s (WTO) Compliance Panel in the DS353 dispute (EU vs U.S.), which relates to billions of dollars in subsidies granted to The Boeing Company.

In March 2012, the WTO’s Dispute Settlement Body ruled that a number of subsides provided by the U.S. to Boeing were illegal, and were to be withdrawn within six months, or alternatively that their adverse effects were to be removed. In September 2012, the U.S. claimed that it had taken all necessary steps to achieve compliance. Today, the EU prevailed in demonstrating the continuing existence of a number of illegal subsidies, including R&D support provided by NASA and the Department of Defense (DoD), and the multi-billion dollar tax breaks from Washington State. The EU has also prevailed in demonstrating continuing adverse effects caused by some of those subsidies.

For a further five years, and by failing to comply with the WTO rulings, the U.S. has continued to provide tremendous benefits to Boeing in the form of unfair and anti-competitive subsidies, resulting in an additional loss of sales of at least 300 aircraft, with an estimated value of US$ 15-20 billion.

In total, combining this with the WTO’s ruling at the end of 2016 in the DS487 dispute, addressing the illegal subsidies for the 777X, as well as prior rulings in DS353, the total impact of the subsidies is estimated to add up to US$ 100 billion in lost sales to Airbus.

Tom Enders, CEO of Airbus, stated: “The amount of money involved completely distorts trade. There is absolutely no place for these unfair and anti-competitive practices in today’s modern and dynamic global marketplace, and the WTO should make it clear that no government or company can escape from their international responsibilities”.

Enders added: “I salute the EU for what again is a great victory for fair trade in commercial aviation. The clarity provided by the WTO in continuous rulings over a decade is impressive and far reaching: First, the WTO stated that the US subsidy system provides largely for illegal grants while the European reimbursable launch investment system based on loans is principally compliant with international trade law. Today, the WTO panel has demonstrated how Boeing continues to seek the benefits from this extensive illegal support, at the great expense of a level playing field in the worldwide aviation industry.”

After the original ruling was published in 2012, the U.S. further increased their subsidies to Boeing, with measures such as the provision of incentives for the production of the 787 in South Carolina, U.S. Federal Aviation Administration funded R&D programmes, increased tax reductions from Washington State, and the award of additional NASA and DOD R&D funding and support. Today, the Panel agreed with the EU that it was correct for these additional measures to be included within the scope of the proceedings.
The Panel found that the non-withdrawn subsidies continue to cause adverse effects in the form of significant lost sales for Airbus. In particular, the Panel found that the B&O tax reductions from Washington State caused Airbus to lose at least US$ 16 billion worth of sales to Boeing. This finding could ultimately lead to the imposition of billions of dollars worth of trade sanctions against the U.S.

It is expected that today’s ruling will be appealed. However, there is no indication that U.S. arguments will be any different from the ones advanced before, despite the clear position of the WTO. With the additional time the U.S. will be buying with any such appeal, the harm to Airbus caused by subsidies will only continue to increase.

Fabrice Bregier, COO of Airbus, commented: “Over the course of this seemingly never-ending dispute with Boeing, it has become very clear that Boeing is using these cases for PR and Lobbying purposes rather than enabling a serious discussion on a level playing field in the commercial aircraft sector. That is not only regrettable but will soon be seen as a shot in their own foot in light of the current and future competitive environment in our industry.”

The first half of 2017 has seen the large commercial aircraft market move into unchartered territory. While we saw the first flights of new market entrants C919 and MC-21 took place, Boeing filed a local trade remedies petition at the US International Trade Commission against Bombardier, with the intention to exclude the C Series from the U.S. market. “It seems to be clear that Boeing is doing all it can to maintain the status-quo from which it has illegally profited for all these years. Airbus looks forward to the day that this ridiculous dispute can be put to bed and we can focus our full attention on investing in further innovation and engaging in healthy competition,” Bregier added.

Airbus would like to take this opportunity to congratulate the European Commission and the governments of France, Germany, the UK, and Spain for their continued success at the WTO. Airbus is extremely grateful for the inordinate number of man-hours and immense effort which have been invested in this dispute so far.

Relevant References to the Report:

Para. #

Quote

Subsidy Findings

8.50

“{T}he amendments made by the United States through the Boeing Patent Licence Agreements to the terms of the pre-2007 NASA procurement contracts and DOD assistance instruments that were the subject of the DSB recommendations and rulings in the original proceeding do not constitute a withdrawal of the subsidy, within the meaning of Article 7.8 of the SCM Agreement.”

8.131

“{D}espite the United States' assertions to the contrary, advancing the competitiveness of the U.S. aviation industry remains an important objective for NASA's aeronautics R&D activities.”

8.151

“NASA essentially commissions Boeing to perform research that NASA hopes will, among other things, support and advance the competitive interests of the U.S. aeronautics industry.”

8.157, 8.353

“{T}he payments and provision of access to {NASA and DOD} facilities, equipment, and employees to Boeing through {post-2006 NASA procurement contracts and post-2006 DOD assistance instruments} constitute financial contributions within the meaning of Article 1.1(a)(1) of the SCM Agreement. Specifically, the payments provided by {NASA and DOD} constitute financial contributions as a direct transfer of funds within the meaning of Article 1.1(a)(1)(i), and the provision of access to facilities, equipment, and employees qualifies as a government provision of goods or services other than general infrastructure within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.”

8.536-8.537

Similar to NASA procurement contracts and DOD assistance instruments, “the allocation of intellectual property rights under the Boeing {FAA} CLEEN Agreement is more favourable to Boeing than the corresponding allocations to commissioned parties under the private collaborative R&D agreements before the Panel.”

8.850(b)

“{T}he payments made by South Carolina pursuant to commitments in the Project Gemini Agreement to compensate Boeing for a portion of the costs incurred by Boeing in respect of the construction of the Gemini facilities and infrastructure through air hub bond proceeds involve a specific subsidy within the meaning of Articles 1 and 2 of the SCM Agreement, in the amount of USD 50 million.”

8.1046

“{T}here is evidence to support the view that the challenged {sales and use tax} exemptions {for aircraft fuel, computer equipment, and construction materials} were tailored specifically for Boeing: the eligibility criteria for the three challenged exemptions precisely match Boeing's South Carolina commitments; the exemptions themselves seem tailor-made to the circumstances of Boeing's operations in South Carolina; the notification deadlines for the use of the exemptions are set to coincide with the beginning of Boeing's Gemini operations in South Carolina; and certain statements by South Carolina authorities suggest that the exemptions were designed for Boeing.”

9.388

“The combined amounts of the Washington State and City of Everett B&O tax rate reductions over the {2004-2006} three year period was USD 16 million. … {T}he amounts of the Washington State B&O tax rate reduction have increased significantly

from the amounts that were found to exist in the 2004-2006 reference period in the original proceeding. We estimate the total amount of the Washington State B&O tax rate reduction to be approximately USD 325 million over the equivalent three year period 2013 – 2015”.

Adverse Effects

9.384 and footnote 3276

The US subsidies “contributed in a genuine and substantial way to the lowering of Boeing's prices of narrow-body, single-aisle LCA in five LCA sales campaigns {Fly Dubai 2008, Delta 2011, Icelandair 2013, Air Canada 2013, and Fly Dubai 2014} between 2007 and 2015”.

9.404

The US subsidies, “through the effects on Boeing's pricing, contributed in a genuine and substantial way to determining the outcome of price-sensitive sales campaigns involving the 737 MAX and 737NG and the A320neo and A320ceo in the Fly Dubai 2014, Air Canada 2013 and Icelandair 2013 campaigns. Accordingly, we consider that the effects of the Washington State B&O tax rate reduction were lost sales of the A320neo and A320ceo in the Fly Dubai, Air Canada, and Icelandair sales campaigns in the 2013-2015 period”.

9.407

The US subsidies are “a genuine and substantial cause of serious prejudice in the form of significant lost sales of A320neo and A320ceo families of LCA in the post-implementation period, in respect of the sales campaigns Fly Dubai 2014, Air Canada 2013, and Icelandair 2013”.

9.438

The effect of the US subsidies “is a threat of impedance of imports of Airbus single-aisle LCA into the United States market”.

9.443

“We conclude, based on the evidence concerning market share trends in the United Arab Emirates market and the evidence of these lost sales, that the effect of the {US subsidies} is a threat of impedance in the United Arab Emirates market in the post-implementation period.”

9.444

“We find that the {US subsidies are} a genuine and substantial cause of serious prejudice to the interests of the European Union in the form of a threat of impedance of imports of the A320ceo to the United States market, within the meaning of Article 6.3(a) of the SCM Agreement, and in the form of a threat of impedance of Airbus single-aisle exports to the United Arab Emirates, within the meaning of Article 6.3(b) of the SCM Agreement, in each case, in the post implementation period.”

Conclusions and Recommendations

11.7(a)

“{W}ith regard to pre-2007 NASA and DOD aeronautics R&D subsidies that were the subject of the DSB recommendations and rulings, the European Union has established that the modifications made by the United States through the Boeing Patent Licence Agreements to the terms of the pre-2007 NASA procurement contracts and DOD assistance instruments do not constitute a withdrawal of the subsidy within the meaning of Article 7.8 of the SCM Agreement and that the United States, having taken no action in respect of pre-2007 Space Act Agreements, has failed to withdraw the subsidy within the meaning of Article 7.8 of the SCM Agreement.”

11.7(b)

“{W}ith regard to the post-2006 measures of the United States challenged in this proceeding, the European Union has established that the following measures involve specific subsidies within the meaning of Articles 1 and 2 of the SCM Agreement, and that by granting or maintaining these specific subsidies after the end of the implementation period, the United States has failed to withdraw the subsidy within the meaning of Article 7.8 of the SCM Agreement:

  1. certain transactions between NASA and Boeing pursuant to post-2006 NASA procurement contracts, cooperative agreements, and Space Act Agreements …;
  2. certain transactions between DOD and Boeing pursuant to post-2006 DOD assistance instruments …;
  3. transactions pursuant to the Boeing CLEEN Agreement …;
  4. Washington State B&O tax rate reduction for the aerospace industry …;
  5. Washington State B&O tax credits for preproduction/aerospace product development …;
  6. Washington State B&O tax credit for property taxes …;
  7. Washington State sales and use tax exemptions for computer software, hardware, and peripherals …;
  8. City of Everett B&O tax rate reduction …;
  9. payments made by South Carolina pursuant to commitments made in the Project Gemini Agreement to compensate Boeing for a portion of the costs incurred by Boeing in respect of the construction of the Gemini facilities and infrastructure through air hub bond proceeds …;
  10. South Carolina property tax exemption for Boeing's large cargo freighters …;
  11. South Carolina sales and use tax exemptions for aircraft fuel, computer equipment, and construction materials{.}”

9.487(b)

“The European Union has established that the {US subsidies} granted or maintained by the United States after the end of the implementation period and benefiting the 737 MAX and 737NG, causes serious prejudice to the interests of the European Union, within the meaning of Articles 5(c) and 6.3 of the SCM Agreement, in the form of: (i) significant lost sales of the A320neo and A320ceo families in the post implementation period in respect of the sales campaigns for Fly Dubai 2014, Air Canada 2013 and Icelandair 2013; and (ii) a threat of impedance of imports of the A320ceo to the United States market and of exports of Airbus single-aisle aircraft to the United Arab Emirates. In this respect, the United States has failed to take appropriate steps to remove the adverse effects, within the meaning of Article 7.8 of the SCM Agreement, and has failed to comply with the recommendation adopted by the DSB in the original proceeding in this dispute”.

11.8(c)

“{T}he European Union has established that the effects of the {US subsidies} are a genuine and substantial cause of significant lost sales within the meaning of Articles 5(c) and 6.3(c) of the SCM Agreement of A320neo and A320ceo families of LCA in the single-aisle LCA market, in respect of the sales campaigns for Fly Dubai in 2014, Air Canada in 2013, and Icelandair in 2013, in the post-implementation Period”.

11.8(d)

“{T}he European Union has established that the effects of the {US subsidies} are a genuine and substantial cause of a threat of impedance of imports of the A320ceo to the United States single-aisle market, and a threat of impedance of exports of Airbus single-aisle LCA in the United Arab Emirates third country market, within the meaning of Articles 5(c) and 6.3(a) and (b) of the SCM Agreement in the post-implementation period”.

11.10

“In light of the foregoing, we conclude that by continuing to be in violation of Articles 5(c) and 6.3(a), (b), and (c) of the SCM Agreement, the United States has failed to comply with the DSB recommendations and rulings and, in particular, the obligation under Article 7.8 of the SCM Agreement to ‘take appropriate steps to remove the adverse effects or … withdraw the subsidy’”.

11.11

“We conclude that, to the extent that the measures at issue are inconsistent with the SCM Agreement, they have nullified or impaired the benefits accruing to the European Union under that Agreement”.

11.12

“We therefore conclude that the United States has failed to implement the DSB recommendations and rulings to bring its measures into conformity with its obligations under the SCM Agreement. To the extent that the United States has failed to comply with the DSB recommendations and rulings in the original dispute, those recommendations and rulings remain operative.”

About Airbus

Airbus is a global leader in aeronautics, space and related services. In 2016, it generated revenues of € 67 billion and employed a workforce of around 134,000. Airbus offers the most comprehensive range of passenger airliners from 100 to more than 600 seats. Airbus is also a European leader providing tanker, combat, transport and mission aircraft, as well as Europe’s number one space enterprise and the world’s second largest space business. In helicopters, Airbus provides the most efficient civil and military rotorcraft solutions worldwide.

Contacts for the media:

Maggie BERGSMA +34 637 5134 86 maggie.bergsma@airbus.com
Matthieu DUVELLEROY +33 6 29 43 15 64 matthieu.duvelleroy@airbus.com  
Mary Anne GRECZYN +1 703 834 3458 maryanne.greczyn@airbus.com
Justin DUBON +33 6 74 97 49 51 justin.dubon@airbus.com
Jeremy CLOSE +44 14 3877 3872 jeremy.close@airbus.com