WTO Confirms Boeing Received Billions in Illegal Subsidies from United States

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Delegation of the European Union to the United States

Mar 12, 2012, 01:15 ET

WASHINGTON, March 12, 2012 /PRNewswire-USNewswire/ -- The European Commission today welcomes the WTO appeal ruling in the "Boeing case" which confirms that billions of dollars in US subsidies granted to Boeing are illegal under WTO rules.

The WTO's Appellate Body rejected the US appeal and found that US Federal and State governments granted between US$5 and 6 billion WTO-incompatible subsidies to Boeing between 1989 and 2006. Subsidies to be granted after this date are estimated to be at least US$3.1 billion.

The Appellate Body went even further than the previous WTO Panel ruling in supporting the EU's claims, notably by finding that the subsidies granted by the City of Wichita (Kansas) also flout WTO rules.

"Today's ruling vindicates the EU's long-held claims that Boeing has received massive US government hand-outs in the past and continues to do so today," said EU Trade Commissioner Karel De Gucht. "The costs to EU industry from these long-term subsidies run into billions of euro. This landmark ruling clearly shows the US has used an unlawful way of supporting business that has stood in the way of fair competition. The US should now put an end to such harmful subsidies."

The Appellate Body DS 353 on Measures Affecting Trade in Large Civil Aircraft ("Boeing") confirmed several of the key findings of the Panel report that certain subsides to Boeing have damaged the interests of the EU and Airbus, notably:

Research and Development funding granted by NASA to Boeing - US$2.6 billion;
Research and Development funding granted by the US Department of Defence to Boeing - up to US$1.2 billion
Foreign Sales Corporation export subsidies – US$2.2 billion;
Washington State tax breaks to a value of close to US$3.1 billion for the period 2006-24.

The Appellate Body expanded the findings against the US by determining that US$476 million subsidies granted by the City of Wichita (Kansas) are also causing adverse effects.

The EU now expects the US to fully comply with this ruling and to implement the findings and obligations by withdrawing these injurious subsidies or their adverse effects.

Background

In the case DS353 against the US "Measures affecting trade in Large Civil Aircraft," the Appellate Body upheld the panel's findings that the NASA and Department of Defence (DOD) research and development (R&D) subsidies enabled Boeing to develop key technologies, without which it would not have been possible to launch the 787 Dreamliner in 2004. The panel emphasised the role of the NASA/DOD subsidies in reducing Boeing's R&D risk and also pointed out the research support in question was not "general" but was specifically focused on developing and improving Boeing aircraft.

The Appellate Body clarified that this arrangement was akin to a "Joint Venture" between NASA/DOD and Boeing, with the essential feature that the fruits of the joint labour largely went to one partner – Boeing.

In addition, the panel noted that the benefits of the research and development support could be multiplied many times over, so that even the $2.6 billion funding amount is a considerable under-estimate of their real value to Boeing.

The conclusion was that the NASA/DOD subsidies give Boeing a competitive advantage causing Airbus to lose a large number of sales campaigns, thus losing sales of the A330 and A350 models (the 200-300 seat market) and threatening to lose its share of certain export markets. Even where it was able to make sales, it had to make them at reduced prices because of the presence of the subsidized 787 on the market.

The Appellate Body has also confirmed that the Washington Tax subsidies and the Foreign Sales Corporation subsidies enabled Boeing to beat Airbus to winning certain orders in the "single aisle" 100-200 seat market (Boeing 737 vs A320).

The panel had ruled that it was not appropriate to cumulate the Wichita subsidies ($476 million) with the Washington and FSC subsidies when assessing price effects. The Appellate Body reversed the panel's findings granting the EU's appeal on this point. It determined that the Wichita subsidies are significant enough in magnitude and sufficiently connected to the B-737 to be cumulated with the tax subsidies.

Therefore, the Wichita subsidies now figure among the US implementation obligations.

The Appellate Body also reversed the panel's finding that the tax subsidies should not be cumulated with the R&D subsidies in the 200-300 seat market, which is a further demonstration of the negative effect of the subsidies from different levels of the US government on the performance of Airbus.

Support to Boeing has been and continues to be in the form of non-repayable grants or free access to government facilities. This is different from the Airbus case where the most important instrument, Repayable Launch Investment (RLI), was considered to be WTO-compatible in principle, with the subsidy element being, for certain cases, solely the difference in conditions provided in comparison to other repayable commercial financing.

For further information:
Facts on the Boeing case DS 353: MEMO 12/180.en
Factsheet on both WTO disputes EU/US large civil aircraft:
http://trade.ec.europa.eu/doclib/html/146486.htm

SOURCE Delegation of the European Union to the United States